BOARD

OF
DIRECTORS

ASIAN

DEVELOPMENT

BANK
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I~ASI[R CCP'f1
IN.2-98 6 January 1998

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SPECIAL STUDY

The following Special Study prepared by the Post-Evaluation attached for information:

Office is

Issues Pertaining to the Engagement of Consultants in Bank Loan Projects and Their Effect on Project Performance

ASIAN DEVELOPMENT BANK
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SST: REG 97038

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I.

(Special Study Series Number 27)

SPECIAL STUDY ON

ISSUES PERTAINING TO THE ENGAGEMENT OF CONSULTANTS

IN BANK LOAN PROJECTS

AND THEIR EFFECT ON PROJECT PERFORMANCE

December 1997

ABBREVIATIONS

COSO CPRM CSC DMC EA EIRR LOI PAl PAM PEAC PMU PRC RETA RM TA TOR

Central Operations Services Office Country Portfolio Review Mission' Consultants Selection Committee Developing Member Country Executing Agency Economic Internal Rate of Return Letter of Invitation Project Administration Instruction Project Administration Memorandum Prequalification, Evaluation, and Awards Committee Project Management Unit People's Republic of China Regional Technical Assistance Resident Mission Technical Assistance Terms of Reference

NOTE In this Report, "$" refers to US dollars.

SS - 27

CONTENTS

EXECUTIVE SUMMARY I. INTRODUCTION A. B. Background Scope and Methodology

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II.

COUNTRY EXPERIENCES A. B. C. Common Factors Resulting in Delays in the Engagement of Consultants Impact of Delays Bank Initiatives to Address the Delays

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III.

MAJOR ISSUES A. B. C. D. E. F. Cumbersome Procedures and Lack of Delegation of Authority Frequent Change in Project Directors Difficulties in the Use of Advance Action Lack of Transparency of the Selection Process Delays on the Bank Side Absence of a System for Monitoring Delays AND RECOMMENDATIONS for Immediate Consideration/Implementation for the Medium Term

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IV.

CONCLUSIONS

A.
B. APPENDIXES

Recommendations Recommendations

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EXECUTIVE SUMMARY Consultants play an important role in implementing development projects in the Bank's developing member countries (DMCs), and their timely engagement is therefore critically important. To facilitate such engagement, the Bank has issued Guidelines on the Use of Consultants by the Asian Development Bank and Its Borrowers to assist its DMCs in the selection and engagement of consultants. Project administration instructions (PAis) are also issued to guide appraisal missions and executing agencies (EAs) in the timely engagement of consultants. Furthermore, the Bank regularly conducts regional and country-specific training programs on the use of consulting services and on project implementation arrangements. Despite all these efforts, the Bank's experience indicates that delay in the engagement of consultants is a serious problem hindering the smooth implementation of many projects across countries and sectors. This study identifies the underlying factors contributing to this problem, examines their implications, and proposes measures for timely engagement and effective use of consultants. The study, carried out under a regional technical assistance (RETA), covers six DMCs-Bangladesh, the People's Republic of China (PRC), Indonesia, Pakistan, Philippines, and Viet Nam. The countries selected for the study reflect a regional balance, large extent of Bank operations, and varying levels of expertise in project management. Country profiles were prepared based on a detailed review of four to five delayed projects representing various sectors in each of the RET A countries. The findings discussed in the study are based on the country profiles; documents provided by the Projects departments; field interviews with the EAs and government officials; the World Bank Group's resident mission representatives of RETA countries, as well as individual international consultants and representatives of consulting firms engaged by the DMCs for the Bank-financed projects covered by this study. The selection and engagement of consultants in Bank-financed projects involve the following steps: (i) developing the terms of reference (TOR); (ii) longlisting of consultants; (iii) shortlisting of consultants; (iv) preparing the letter of invitation (LOI); (v) developing a set of evaluation criteria; (vi) inviting proposals and evaluation and ranking of proposals; (vii) drafting the consultant's contract; and (viii) negotiating the contract with the first-ranked consultant/firm and signing a contract. Delays have been experienced in the engagement of consultants in all the RETA countries at virtually every stage of the process. The degree of delay varies from country to country with the PRC experiencing less of it compared with Bangladesh and Pakistan where delays were found to slow down projects by up to two to three years, and Indonesia, Philippines, and Viet Nam somewhere in between. The most common reasons for delays in engaging consultants include (i) lack of familiarity with the Bank's Guidelines and procedures and, in some cases, nonadherence to them; (ii) inadequate delegation of authority and highly centralized cumbersome decisionmaking procedures at various stages of selecting and engaging consultants; (iii) unwillingness by the EAs to exercise the available authority; (iv) frequent transfer of project directors and managers; and (v) lobbying and political interference. The study found that apart from the EAs' unfamiliarity with the Bank's Guidelines and procedures, layered committee setups for checking/reviewing/approving the EAs' proposals were a major cause of delay. In many cases, all matters relating to the recruitment of consultants had to be approved by a minister and, in some extreme cases, even

iii by the head of the government. Such approval requirements for documents, like the TOR, shortlist, draft contract, and evaluation criteria, is an unhealthy practice. The EAs in some countries were also found to be extremely cautious in taking initiatives, avoiding responsibilities by seeking approval of their higher authorities at every step of the selection process. Several projects reviewed point out the frequent replacement of project directors as a contributory factor to delays in the recruitment of consultants.' Such frequent changes have in fact resulted in the reevaluation of proposals, in effect repeating the recruitment process. There were cases where the substitution of key personnel by consulting firms without compelling reasons led to unnecessary delays in the finalization of the engagement process. In most of the RETA countries, it appears that the selection of consultants takes place in an environment that is not transparent. Lobbying takes place in different ways and is often resorted to by interested parties who wish to be included in the shortlist and then to win the award of contracts. In several projects, the delays in the engagement of consultants at various stages (but mostly in the shortlisting and evaluation of proposals) were attributed to some forms of lobbying. It appears that there are ways of getting around the restrictions of the Guidelines without violating formal procedures, and thus influencing the evaluation and ranking. Even the individual international consultants and consulting firms interviewed for this study admitted to the preponderance of influence peddling. Factors contributing to delays on the Bank's side include insufficient attention paid to the institutional strength and weaknesses of the EAs by project appraisal missions resulting in unrealistic timetables for the recruitment of consultants and consequently delays in the actual engagement of consultants. Also, the DMCs' domestic procedures and practices in the loan process are not always examined by the Bank, resulting in unnecessary misunderstanding of the procedures involved. In fact, under the PAis issued by the Bank, appraisal mission leaders are supposed to have the project administration memorandum, TOR, evaluation criteria, and draft contract, all agreed upon with the EA at appraisal. Typically, however, the TOR of the consultants are discussed only in outline form at the appraisal stage and are firmed up at a much later stage leading to delays in the engagement of consultants. With a view to addressing this issue, the Bank has taken a number of initiatives. It is giVing increased attention to its training activities to familiarize the EAs with Bank procedures, guidelines, and requirements. The Bank also allows the DMCs to take advance action for the recruitment of consultants where up-front activities, e.g., TOR, draft LOI, shortlist of consultants, etc., are allowed and encouraged prior to loan approval. Resident missions are continuously being strengthened with increased delegation of authority and a greater number of projects are being placed under their direct supervision. Coordination with! other multilateral development banks is being carried out to jointly address the issue. This study indicates that there is no system to monitor when the process of selection of consultants is delayed. In most cases, the Bank expresses its concern to the EA officials, copied to or through the resident missions. When delays get longer, the information is forwarded to the head of the ministry. There were a few cases where pressure from the Bank in the form of possible loan cancellation facilitated the recruitment process with the required decisions on various stages being arrived at in one day. While discretionary actions like these
The exception among the countries reviewed was the PRC where project directors once appointed serve until the completion of the project. In general, project directors in the PRC are also accountable for the project's performance.

iv have helped specific projects, they have not been able to bring significant impact on improving the system. The Bank's resident missions, given appropriate authority and accountability, can playa powerful role in effecting an early warning system for monitoring delays. In conclusion, experience with the engagement of consultants was generally unsatisfactory in most of the projects reviewed. Some contributing factors are Bank-led and relatively easy to address, while others are viewed as internal matters and prerogatives of the DMCs. Given the complexity of the issue, it is important that the Bank engages in a serious policy dialogue with the DMCs. Considering that the issue pervades all sectors and is closely related to good governance and transparency, such dialogue should be carried out by Programs Departments and should include the need for (i) making the process of consultant selection more transparent, (ii) providing the EAs with increased authority and responsibility in the selection process and encouraging them to exercise such authority by creating an enabling environment, (iii) allowing efficient project directors to serve for longer periods, and (iv) setting up an early warning system to detect delays. The Bank must show preparedness to assist the EAs by directly participating in the consultant selection process when requested by the EA/government, particularly in those cases where consultancy services are required up-front in project implementation. The Bank must also not hesitate to carry out loan cancellation in cases of excessive delay, and to undertake an audit of the consultants' contracts when evidence warrants. Apart from its policy dialogue with the DMCs, several more recommendations are proposed to address the issue. The Bank should consider making available simplified technical proposal procedures for the engagement of consultants for contracts of limited amounts, particularly to those EAs that have established transparency in consultant selection. The Bank must require appraisal missions to rigorously follow all relevant PAis to enable the EAs to complete most of the process of consultant selection by the appraisal stage. As a next step, the Bank may consider making the submission of the shortlist of consultants by the DMCs a condition for loan negotiation. The advance action facility provided by the Bank for the recruitment of consultants has worked well in some of the DMCs, and this facility should be retained. Appraisal missions, however, must put additional efforts into making it more effective. To avoid delays resulting from the practice of substituting key personnel by some consulting firms for noncompelling reasons, the Bank should consider making such firms ineligible for future bidding for a given period. In addressing the issue of consultant delays, the support of the Central Operations Services Office to appraisal missions needs to be further strengthened. Staff from the Office should, where warranted, participate as a member in loan negotiations on the Bank side, and project director from the DMC side. As a long-term solution, the Bank must continue its efforts to promote the use of the domestic consulting industry through systematic planning of its technical assistance activities. Finally, a working group committee headed by a senior staff may be constituted with representatives from Projects/Programs departments, the Central Operations Services Office, the Post-Evaluation Office, and other concerned departments/offices to study the proposed recommendations prior to their implementation.

I.
A. Background

INTRODUCTION

1. Consultancy services play an important role in planning, design, and implementation of development projects. Their services are used to assist the Bank in carrying out its operations, and the developing member countries (DMCs), through their executing agencies (EAs), in carrying out Bank-financed projects. The assistance of consultants is needed by the Bank and its DMCs to ensure quality and provide least-cost designs in the preparation, construction, and operation of projects, and in undertaking related activities. Thus, the timely engagement of competent consultants is important in the smooth implementation of projects. Consultants can either be domestic or international, and individual or a firm. 2. The Bank uses consultants for technical assistance (TA) activities that it finances from its own resources or that are executed by the Bank on behalf of another institution. The Bank also uses consultants to supplement its own staff in carrying out its own operations. In these cases, the consultants are selected and engaged by the Bank. When the DMCs use consultants in carrying out projects financed by the Bank, they are responsible for the selection, engagement, and supervision of the consultants. The Bank, however, has to be satisfied that the functions and responsibilities to be assigned to the consultants are adequately defined, that the consultants are competent for the assignment, that the conditions of their contract are satisfactory, and that the contract is duly performed. 3. To help the DMCs in this, Guidelines on the Use of Consultants by the Asian Development Bank and Its Borrowers' provide the general principles and procedures governing the selection and engagement of consultants by both the Bank and the DMCs. Under the Guidelines, the Bank adopts a quality-based approach to inviting proposals from consulting firms, i.e., selection of firms is made on the basis of qualifications to perform work, and financial terms are discussed only at the time of contract negotiations with the selected firm. The Guidelines allow the borrower, if it so prefers, to invite financial proposals together with technical proposals by utilizing a two-envelope system." For countries where provisions of their existing domestic guidelines are consistent with the Bank's Guidelines, both guidelines can be adopted with the Bank's Guidelines prevailing in cases of inconsistencies. 4. As part of familiarizing the EAs with the Bank's Guidelines, the Bank regularly conducts regional and country-specific training programs on the use of consultant services and on project implementation arrangements. Such programs cover various aspects of consultancy selection and engagement with a particular focus on the documents required for submission by the DMCs to the Bank for the timely engagement of consultants. About two regional workshops and five to seven workshops on the use of consultancy services and project implementation arrangements are conducted by the Bank each year across the DMCs. The Bank also conducts three to four seminars every year on development of domestic consultants in various DMCs where the target participants are domestic consulting firms and individual consultants.
Guidelines on the Use of Consultants by the Asian Development Bank and its Borrowers. Asian Development Bank. 1994. Under the two-envelope system, the technical and financial proposals are obtained simultaneously but in separate envelopes from each of the shortlisted firms. The financial proposal, which should be submitted in a sealed envelope, will only be opened during contract negotiations with the first-ranked firm. When a contract has been successfully negotiated, the financial envelopes of the remaining firms must be returned to them unopened.

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5. Despite all these efforts, Bank experience indicates that in cases of Bankfinanced projects where the DMCs engage consultants, delay has become a serious problem hindering the smooth implementation of projects. This problem is underscored in a number of project performance audit reports and in several Annual Reviews of the Post-Evaluation Office. Country portfolio review missions (CPRMs) to most DMCs also have identified this as a serious impediment. In fact, the CPRMs regularly identify recruitment as a leading generic issue. A report prepared by the Central Operations Services Office (COSO) on project administration shows this to be a persisting problem across the DMCs and in virtually all sectors.' More than half of the ongoing Bank-financed projects were found to have experienced difficulties and/or delays2 in the engagement of consultants, Of the 73 ongoing loan projects with significant requirements for consultants in the Agriculture Department, West alone, consultants were engaged on time only 15 percent of the time. During 85 percent of the time, there were delays ranging from 6 to 12 months and, in several cases, delays were more than 18 months. Other Projects departments also have similar experience, although in varying degrees. 6. Since consultants are usually required up-front for starting activities in project implementation, e.g., design work, prequalification of contractors, and preparation of tender documents, any delay in the recruitment of consultants automatically delays overall project implementation resulting in increased project costs, deferred project benefits and, in a number of cases, hindrance to project success. Delays could also impact on the Bank's disbursement of funds, the recurrent budget estimation and disbursement processes of the DMCs, and in some cases, the absorptive capacity of development assistance by the DMCs. In several projects in Bangladesh, the delays were for over two years, some projects in Pakistan for nearly three years, several projects in Indonesia, Philippines, and Viet Nam ranging from six months to about one year or more. The present study was initiated against this background. The study aims to identify the underlying factors, examine their implications, and propose measures for the timely engagement and effective use of consultants in Bank-financed projects" in the DMCs. B. Scope and Methodology

7. This study on the Issues Pertaining to the Engagement of Consultants in Bank Loan Projects and Their Effect on Project Performance is one of the five special studies being carried out under regional technical assistance (RETA) 5734.4 The present study covers six DMCs-three in the West region Bangladesh, Pakistan, and Viet Nam and three in the East region People's Republic of China (PRC), Indonesia, and the Philippines. The countries selected for the study (RETA countries) have relatively large Bank operations and require varying levels of expertise in project management. 8. To generate Bank-wide views and insights on the issue of the delayed engagement of consultants in Bank loan projects, (i) an interdepartmental review committee consisting of representatives from the Projects departments, COSO, and Post-Evaluation
SEC.M51-97: Semiannual Report on Project Administration and Technical Assistance Implementation for the Period Ending 30 June 1997, dated 22 September 1997. Delays are measured from the time consultants were scheduled to be engaged as indicated in the appraisal reports. Projects are defined in a broader context to include program loans and sector loans. RETA 5734: Impact Evaluation and Special Studies on Issues of Operational Importance. for $600,000. approved on 15 April 1997.

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3 Office was formed; (ii) an inception workshop was carried out in the Bank, attended by officers from the Projects and Programs departments and from other offices, as well as by six domestic and two international consultants engaged for this study; and (iii) further discussions were held with Bank staff across the various departments/offices. 9. The approach in carrying out the study entailed a review of the ongoing projects experiencing implementation delays resulting from, among others, delays in the engagement of consultants, as provided by the Projects departments. Six country profiles were prepared based on a detailed review of four to five projects representing various sectors with delays in consultant recruitment of six months or more in each of the RETA countries. The findings discussed in this study are based on the country profiles, the project documents provided by the Projects departments, field interviews with the EAs and government officials, representatives of other lending institutions, i.e., World Bank, and individual consultants and representatives of consulting firms engaged by the borrowers for the Bank-financed projects covered by the RET A. Appendix 1 provides the list of projects covered in the study for each of the six countries under the RET A. 10. The study is arranged as follows: Chapter II provides the experience of RETA countries in the engagement of consultants highlighting at which stage of the project cycle the delays mostly occurred and the underlying factors behind such delays, their effects on project performance, and the efforts initiated by the Bank to address them; Chapter III highlights some of the major issues shared by the RETA countries; and Chapter IV provides some suggestions and recommendations for consideration by the Bank and the DMCs. II. COUNTRY EXPERIENCES

11. The Bank has been lending to all of the RETA countries for a long period. The average percentage of loan amounts allocated for consultants ranged from about 4 to 12 percent. All these countries generally agree with the important role played by consultants in helping design and implement development projects, and in bringing new technology and international management and business practices into the country. In all these countries, delays were experienced in the engagement of consultants. The degree of delay has varied from country to country with the PRC experiencing less of this problem vis-a-vis Bangladesh and Pakistan where this issue has slowed projects by two to three years and other RETA countries somewhere in between. 12. The selection and engagement of consultants in Bank projects involve the following major steps: developing the terms of reference (TOR), longlisting of consultants, shortlisting of consultants, preparing the letter of invitation (LOI), developing evaluation criteria, evaluation and ranking of proposals, drafting the consultant's contract and finally, contract negotiations with the first-ranked firm. Cumulatively among the RETA countries every kind of possible difficulty has been encountered at virtually every stage of the engagement of consultants-some are more country-specific and others more generic. While the details of the country profiles with project-specific details are provided in Appendix 2, the common factors in the RETA countries resulting in consultant engagement delays are presented here.

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A. Common Factors Resulting in Delays in the Engagement of Consultants

13. The most common reasons for delays in engaging consultants under the loanfinanced projects in many of the RETA countries include (i) lack of familiarity with Bank guidelines and procedures, in some cases nonadherence to them, e.g., Bangladesh," Pakistan, Viet Nam2; (ii) inadequate delegation of authority and highly centralized cumbersome decision-making procedures at various stages of the selection and recruitment of consultants, e.g., Bangladesh, Indonesia, Pakistan, Philippines, and Viet Nam; (iii) EAs' unwillingness to exercise their authority, e.g., Bangladesh, Indonesia, Pakistan; (iv) lobbying, interference, and representation in most RETA countries perhaps with the exception of the PRC; and (v) frequent transfer of project directors and project managers, e.g., Banqladesh," Indonesia, and Pakistan.

14. Overall, the Bank's Guidelines together with the Project administration instructions (PAI),4 issued by the Bank and updated from time to time, are clear about the steps to be taken in the engagement of consultants. The documents to be submitted are defined in the PAl; there are even sample documents and a checklist of activities to be undertaken. However, the provisions in both the Guidelines and existing Bank documents do not always appear to be enforced properly. Contrary to the Guidelines, when documents at various stages of the selection process (e.g., shortlist, invitation documents, draft evaluation criteria, and draft contract) are to be sent to the Bank for approval, most of the EAs do it in installments even though approval for all of them should be obtained at one time. Such practice, resulting from inadequate knowledge of Bank procedures, clearly leads to more delays. On the part of the Bank, a review of projects covered under the study indicate that appraisal missions have not always fully taken into account the institutional capacity of the EAs, nor have the domestic procedures and practices been clarified. Furthermore, while Bank mission leaders are supposed to have time schedules, selection criteria, draft contracts, and invitation documents all agreed upon at appraisal, these are not adhered to in most cases. For example, even the TORs of the consultants are typically discussed only in an outline form at the appraisal stage; they are to be firmed up later. The Guidelines are quite clear that all the requirements for the engagement of consultants should be available for approval by the Bank's Consultants Selection Committee during loan negotiations, at the latest. This was not done for all of the projects covered by this study.
15. Furthermore, in many cases, the schedule for the appointment of consultants is not realistic, considering the limited institutional capacity of the EAs or the project implementing units, the cumbersome domestic procedures for approval, and the varying needs of the
In Loan No. 1478-BAN(SF):Jamuna Bridge Access Roads, for $72 million, approved on 5 November 1996, the proposals submitted were ranked three times by the EA with the first-ranked firm being different in each of the three evaluations. For instance, in Loan 1358-VIE: Power Distribution Rehabilitation, for $79.98 million, approved on 8 June 1995, the team leader of the first-ranked firm was from a nonmember of the Bank. In Loan No. 1074-BAN: Second Health and Family Planning Services, for $51 million, approved on 10 January 1991, there were five project directors in less than four years. PAl No. 1.01 Initial Project Administration Activities June 1997; PAl No. 1.05 Preparatory Supervision Actions: Project Administration Memorandum revised on 1 July 1996; PAl No. 3.01 Consultants: Instruction on the Selection and Engagement of Consulienis by the Bank last revised on 4 August 1997; PAl No. 3.02 Consultants: Preparatory Work During Appraisal and Loan Negotiations by the Bank last revised on 1 June 1995. PAl No. 3.02 Consultants: Preparatory Work During Appraisal and Loan Negotiations by the Bank last revised on 1 June 1995. This, however, may not be possible in case of sector loans and program loans.

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projects. In some projects, the risk of delay appears to have been underestimated, although lessons from earlier projects would indicate caution. In some other projects, the EA was required to appoint several groups of consultants within the same time frame, which was hardly realistic considering the EAs' capacity. 16. Of the six RETA countries, three (Bangladesh, Indonesia and the Philippines) have well-articulated official guidelines on the selection and engagement of consultants. These official guidelines are adopted by the Government for application by all government agencies. The PRe has no official guidelines of its own yet and, therefore, follows those of the lending institutions; Viet Nam is in the process of developing its own guidelines; and Pakistan generally draws from the provisions of guidelines of lending institutions. But, every province in Pakistan has formed a consultants selection committee that gives the necessary approvals at major stages of the selection process. In 1994, the Government of Punjab issued guidelines for the selection of consultants. Overall, the lack of any official guidelines on the use of consultancy services results in nonuniformity in application and/or misinterpretation of procedures among the EAs, thus resulting in delays. 17. In some countries, e.g., Bangladesh and the Philippines, the guidelines are well developed and even specify a time frame for each stage of the consultant selection process. They provide a broad evaluation criteria and empower the concerned department secretaries to approve all consultancy contracts of the agency, together with the sanctioning authority. However, the guidelines are not enforced rigorously and, in the case of Bangladesh, rarely adhered to. In other countries, the authority delegated to the EAs in the Guidelines is very limited. In Indonesia, the authority for approving contracts by the EAs is limited to Rp2 billion, up to RpS.O billion by the director general, up to Rp10 billion by the minister, and above Rp10 billion by the central procurement team. Similar limited ceilings exist in Bangladesh, Pakistan, and Viet Nam (even though the latter two do not have formal guidelines). In the PRe, on the other hand, the EAs are given full administrative and financial authority at all the stages of consultant selection. 18. While inadequate delegation of authority to the EAs in most of the RETA countries comes out as a predominant factor causing delays in the engagement of consultants, the study has found that in some countries (Pakistan and, to a certain extent, the Philippines), the EAs are reluctant to exercise the authority available to them. These EAs send intermediate documents (e.g., shortlisting, TOR, LOI, evaluation criteria, etc.) to senior officials in the line ministry for their approval even though this is not required. This arises either because the ministry has unwritten instructions due to personal interest in the selection, or because the EAs want to play safe and avoid responsibility for any possible future problem. In the process, the engagement of consultants takes much more time than what is prescribed in the guidelines. Merely empowering the EAs with increased authority in such a context thus mayor may not give the desired results.' 19. The heavy lobbying and political pressure resulting in nontransparency in the process of consultant selection is another factor causing delays in the engagement of consultants.i With the exception of the PRe, lobbying and interference even before shortlisting, and particularly from the stage of ranking of proposals onward, was evident in all
Some of the DMCs feel that given the great capability variance from one EA to another, increased delegation of authority to them in a nondiscriminating way may not be advisable. Observations on this aspect are admittedly and understandably somewhat impressionistic.

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other RETA countries. The worst scenario is presented by a project in Bangladesh 1 where the delay in the selection of consultants was nearly three years and another project in Pakistan where the delay was over two years." In both cases, heavy lobbying and political pressure were cited as the major contributing factors. The frustration of the EA staff resulting from the pressure was vivid when in one of these countries, a suggestion was made for the Bank to take charge of engaging consultants in loan projects (like in TA projects)." The rationale for such a radical proposal was expressed in terms of (i) expediency, if the Bank takes over the function; (ii) technical efficiency, as the Bank tends to have more information about the consulting firms; (iii) neutrality, free of biases and pressures existing in the country; and (iv) transparency. 20. Lobbying seems to exist in many forms-either directed toward international consultants, or initiated by international consultants, or in terms of pressure on staff of the EAs. In Bangladesh, it is a widely held view among the international consultants that there is a lack of sufficient confidentiality in the evaluation of technical proposals by the Government." In Viet Nam, the international consultants were found attempting to influence the ranking of proposals by offering some key officials of the EAs and Central Government international visits to their head offices. In Pakistan, some international consultants were able to earn favor from key Government officials and offering full scholarships to foreign schools, in terms of gaining information about the evaluation, and successfully influencing some members of the evaluation committee. This aspect of lobbying also needs to be addressed by the Bank in trying to maintain transparency in the process of consultant selection. 21. In Bangladesh and Pakistan, delays were experienced in virtually all stages of the engagement process of consultants implying systemic weakness in the institutions apart from the elements of lobbying and poor governance. In other countries (Indonesia, Philippines, and Viet Nam), the delays were mostly experienced during and after the ranking of the proposals, thus clearly indicating lobbying and pressures at work. 22. Another unhealthy practice noticed in some of the RETA countries (e.g., the Philippines and Viet Nam) is that of consulting firms nominating personnel with impressive qualifications in the technical proposals but replacing them later. While the Guidelines provide that the EAs may allow the first-ranked firm to replace proposed personnel for unavoidable valid reasons (e.g., death, long-term illness), a review of the projects across countries revealed that substitution of personnel, even team leaders, by consulting firms is widely practiced for noncompelling reasons. Personnel with attractive curriculum vitae are included in the submission of the proposals and then are replaced upon winning the contract. This leads to unnecessary delays in the finalization of the engagement process because the new

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Loan No. 1291-BAN: Southwest Area Water Resources Development, for $3.15 million, approved on 16 December 1993. Loan No. 1297-PAK: Third Punjab On-Farm Water Management, for $62.16 million, approved on 8 March 1994. Observation was made in one of the RETA countries of the need for the Bank to engage consultants on behalf of the Government at least in those cases where such services are critically required up-front in project implementation. The situation in this country had gone so bad that one international consulting firm had reportedly made a policy decision not to bid for any work.

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submissions have to be reviewed again by the EAs and the Bank. Moreover, the quality of the final work is no longer ensured.' 23. Apart from the above common problems, some country-specific or situationspecific aspects that resulted in the delays in consultants' engagement include: (i) lack of response from shortlisted firms due to small volume and value of work," (ii) deviation from the TOR in the last stage of contract neqotlations," (iii) an EA with limited institutional strength having to engage several groups of consultants within a given time-frame," and (iv) sudden deterioration in the law and order situatlon." 24. Another somewhat different factor but one that could delay the process of engaging consultants is the view widely held in all the RETA countries that international consultants are imposed on the DMCs in greater numbers than needed. Some countries even perceived that Bank approval of loans hinged on the DMCs' acceptance of the international consultants. These countries also consider that for many routine types of projects financed by the Bank requiring standard skills and services, the competence level of their domestic consultants should be sufficient. However, given the relatively low performance level of Bank projects in most of the RETA countries, such view that international consultants are unnecessary is debatable. Regardless of which view is more accurate, such perceptions among the EAs generate feelings of nonownership of, and noncommitment to, the projects (or at least toward the international consultants). The timely engagement of consultants under such circumstances becomes most difficult, and even after their engagement, their effectiveness becomes questionable. This perception was particularly strong in the PRC and Indonesia." Such an impression prevailed even in Viet Narn' where Bank operations resumed only recently, and in Bangladesh where the scope for institutional improvement is visibly evident. Bearing in mind the DMCs' tendency to overestimate the capability of domestic consulting firms on the one hand, and the uncompromising need for quality on the other, the Bank may need to address this widely felt perception. At the same time, the Bank needs to undertake organized efforts to help promote the domestic consulting industry in the medium to long term by working out explicit and effective arrangements for the transfer of technology from international consultants financed under the loans and TAs. Such an approach will also complement the Bank's Guidelines, which give importance to helping promote domestic consulting capability. This will call for Bank missions to make a better assessment of the domestic consulting industry during project appraisal than currently done prior to assigning
In one project in Viet Nam Loan No. 1272-VIE: Road Improvement Project, for $120 million, approved on 29 November 1993, the consulting firm suggested, soon after contract signing, a series of changes including that of the team leader and several experts on the team. In another case in the same country, there was 100 percent substitution after contract signing. Such practices by consulting firms, when not justified, destroy the very foundation of the bidding process. Loan No. 1270-PRC:Tangshan and Chengde Environmental Improvement, for $140 million, approved on 25 November 1993. Loan No. 1259-VIE: Irrigation and Flood Protection Rehabilitation, for $76.5 million, approved on 26 October 1993. Loan No. 1111-INO: Bogor and Palembang Urban Development, for $140 million, approved on 31 October 1991. Loan No. 1332-PHI(SF):Rurallnfrastructure, for $17.5 million, approved on 10 November 1994. While Indonesia makes the case for more domestic consultants, it is also one of the few DMCs found to have interest in accepting international consultants for formulating follow-up projects from many ongoing projects. There were cases where the implementation pace of the main project was delayed on account of delays in the engagement of consultants who were to design/formulate the follow-up projects. In one case in Viet Nam, the EA, at a later stage, requested the Bank to strengthen the international consultants' inputs because its own staff could not effectively handle the international contractors.

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international consultancy inputs in Bank projects. This might also entail longer appraisal mission duration and larger mission composition (with suitable skills). 25. None of the RETA countries has a system Of rating the performance of consultants. As a result, in some RETA countries, e.g., Indonesia, a poor-performing consultant could still get an assignment in a different agency. The Bank should encourage DMCs to adopt systems to rate the performance of consultants and require that such information be shared among different agencies in the government, the Bank, and other lending institutions. Information on both good performers and poor performers may be set up at the planning office or equivalent. Indeed, the database could gradually be expanded to include consultancy-related additional information, e.g., number of personnel replacements, number of contract variations. B. Impact of Delays

26. Since the selection and engagement of consultants is one of the major up-front activities of the project cycle, any delay in the consultant selection process would inevitably delay subsequent activities. For example, the delayed appointment of engineering consultants will slow down preliminary activities such as field surveys, detailed design, and preparation of bid documents. The delay of more than two years in the engagement of the engineering consultants for design and supervision of rural roads under the Barani Area Development Project in Pakistan 1 can be expected to contribute to a lower than expected project benefit stream. In the Jamuna Bridge Access Road Project in Banpladesh' the delay in the engagement of supervision consultants also delayed the start of other activities such as Signing of the civil works contracts because these consultants had to first review the contractor's work plan. This would delay the construction of the critical approach road by two years. Furthermore, working seasons would also be lost and the full benefit of the Project would not be realized for at least two years. 27. Such findings clearly establish that delays in implementation can result in substantial economic and social costs, deferred benefits, or the partial rather than full realization of intended benefits or even the nonaccrual of benefits. In other words, quality of project performance (assessed in terms of economic and financial results and costs) deteriorates. For instance, the sensitivity analysis in the appraisal reports of the projects covered in this study show that relative to the base case, a delay of one year in implementation would result in a reduction in the economic internal rates of return (EIRR). Of the 15 study projects that analyzed the sensitivity of the EIRR to such a delay, nine showed an average reduction in EIRR of 9 percent, and six projects had an average reduction of 20 percent. These findings are confirmed by the postevaluation experience of several projects across countries and sectors where delay in implementation was cited as one of the major reasons for the decline in the EIRR estimate from appraisal to postevaluation. Also, delays normally compound the effect of inflation leading to cost overruns. Long delay and substantial cost overrun may render the EIRR of certain projects below viable levels. Furthermore, for projects in countries that receive loans with ordinary capital resource funding, there are increased costs in terms of additional commitment charges that these DMCs are required to pay on account of project delays.
Loan No. 1012-PAK(SF): Second Barani Area Development, for $25 million. approved on 20 February 1990. Loan No. 147B-BAN(SF): Jamuna Bridge Access Road, for $72 million. approved on 5 November 1996

'2

9 =

c.

Bank Initiatives

to Address the Delays

28. Considering that the problem of delays in engaging consultants has been a persistent problem for so long, the Bank has taken initiatives to address the issue from time to time. As emphasized earlier, delays are encountered at virtually every stage of the consultant selection process in many of the RETA countries. The major remedy is to get as many steps of consultant selection accomplished as possible during loan appraisal or loan negotiation. Accordingly, since 1994 the Bank has required Bank staff to prepare, in close consultation with the EA, a project administration memorandum (PAM), that shows each step of the consultant recruitment process and its tirninq.' The Bank also issues various PAls2 requiring staff to assist the EAs to undertake preparatory work on the engagement of consultants prior to or during project appraisal, and provide the concerned EAs and the government department with the most relevant project data to facilitate and monitor project implementation. Appraisal missions are also required to furnish the EAs with a number of documents, including, among others, a time schedule form for the recruitment of consultants, longlist of consultants (if requested by the borrower), sample draft invitation document, sample form evaluation of proposals, sample contract for consultants, and Bank Guidelines on the Use of Consultants. The EAs are required to finalize and submit to the Bank, among others, a shortlist of consultants, invitation documents (LOI, TOR, etc.), evaluation criteria, and draft contract before or during loan negotiations, and have them approved by the Bank before the loan is approved. The complete list of actions to be taken by the mission leader with regard to the recruitment of consultants is given in Appendix 3. The PAis, when effectively enforced, can be expected to significantly shorten the delays currently being experienced." 29. The Bank is also giving increased attention to its training activities to help familiarize the EAs with Bank procedures, guidelines, and requirements. Over the past decade the Bank has carried out, in the RETA countries, 28 seminars on the use of consultants and 21 on project implementation arrangements in RETA countrles."

2

4

See PAl No. 1.05. PAl No. 1.01 Initial Project Administration Activities June 1997; PAl No. 1.05 Preparatory Supervision Actions: Project Administration Memorandum revised on 01 July 1996; PAl No. 3.01 Consultants: Instruction on the Selection and Engagement of Consultants by the Bank last revised on 4 August 1997; PAl No. 3.02 Consultants: Preparatory Work During Appraisal and Loan Negotiations by the Bank last revised on 1 June 1995. Most of the projects covered under the study were processed around the time the PAM was first introduced. This seminar typically focuses on aspects of consultant engagement particularly on documents required for submission by the EAs to the Bank. The seminar usually lasts for four days for an audience of about 30 to 35 EA staff.

10 Seminars Carried out by COSO

1986-1997
Country
Bangladesh China, Peoples' Republic of Indonesia Pakistan Philippines Viet Nam

Seminar on the Use of Consultant Services
5 6

Seminar on Project Implementation Arrangements
3

6
5

4 5
5

3 3

Total
Source: COSO.

28

2 2 21

The effectiveness of these seminars, however, has been somewhat mixed. The principal factor limiting their effectiveness is the inability to secure the right audience, i.e., the staff from the EA who are directly involved in executing Bank projects and who could directly benefit and make use of the skills imparted in the training programs. Ironically, the pecuniary incentives provided to the participants in the program seem to attract officials who may not have direct involvement with the subject matter. There are also cases where the holding of training programs in another country seem to attract the wrong officials even more. This confirms the experience of the World Bank Group. It is recognized that there is a need for further improvement of COSO's training programs. The seminars carried out by the Bank for domestic consultants was suspended in 1990, but it was revived in 1997 with about three to four seminars scheduled annually. 30. Another initiative of the Bank to address the issue is to allow the DMCs to take advance action for the recruitment of consultants. Under this facility, the up-front activities required of the EAs, such as preparing a shortlist, an invitation letter (including TOR), the evaluation criteria, draft contract, and timetable for consultants recruitment activities, etc. will be facilitated. The use of advance action is encouraged and, indeed, in the case of advance action not being envisaged, the Project Brief of the Management Review Meeting or the appraisal mission's back-to-office report are required to provide the reasons for not proposing advance action for the recruitment of consultants.' 31. The Bank has also strengthened its resident missions (RMs), increasing the delegation of authority and placing a greater number of projects under their direct supervision. The Indonesia RM, for instance, was able to expedite, in several cases, the EAs' consultant selection process by seeking and obtaining approval from Bank headquarters over the telephone. All the RETA countries with RMs have suggested that the upgrading/strengthening of RMs will greatly facilitate tackling the consultancy and other implementation issues when they arise. 32. The recent increased importance accorded by the Bank to the CPRM emphasizes its seriousness in monitoring project adrnlnistratlon.? Admittedly, the CPRM aims at the much broader goals of overall project implementation. Such initiatives, however, will have an inevitable positive effect in alleviating consultancy-related problems as well. The
See PAl No. 3.02 August 1997. With a view to strengthening country portfolio review, efforts are underway to intensify the CPRM to be led by the vice presidents as far as possible. New guidelines were also developed by the Bank in June 1997 to strengthen the country portfolio review.

2

11 recent agreement between the Bank's RM and the World Bank's RM in Jakarta to carry out separate CPRMs but with mutual participation in alternate years is expected to yield positive results. Given both agencies' similar experience in consultancy and other implementation issues, such sharing of CPRM findings will provide a better forum for policy dialogue with the Government. Based on the results, the possibility of such a joint exercise may also be explored by the RMs in other countries. In Bangladesh, for instance, the World Bank and the Bank share CPRM findings. In addition, a domestic consultancy group chaired by the Bangladesh RM was formed by all of the funding bodies to address project implementation issues, including consultancy recruitment. 33. Despite the above initiatives taken by the Bank, the Bank needs to continuously make new efforts to address the problem. Some of the major continuing issues and the proposed recommendations are the themes of the subsequent sections. III. A. Cumbersome Procedures MAJOR ISSUES of Authority

and Lack of Delegation

34. The degree of delegation of authority and administrative capacity of the EAs vary from country to country and among EAs within the same country. Except in the PRC, where all the EAs have the final authority (and it is actually exercised) for approval at all stages of the selection process, the EAs in the other five countries have limited authority in the process of consultant selection. Lack of authority of the EAs and the bureaucratic system of approving the recruitment of consultants has delayed matters in most of the DMCs most of the time. Even within the same country, the delegation of authority to EAs is not uniform. Some of the EAs have a status and standing that is unclear and undefined in respect of its decisionmaking authority and do not enjoy the authority delegated to other EAs. 35. Multilayered approval requirements and multilayered committee setups for checking/reviewing/approving EAs' proposals have been a major cause of delay. In many cases, all matters relating to the recruitment of consultants has to be approved by a minister and, in some extreme cases (depending on the value of the consulting services), by the head of the government. While the need for approval of a contract at a senior level may be reasonable when the sums committed are high, approval requirements for documents like the TOR, shortlist, draft contract, and evaluation criteria, is an unhealthy practice. In fact, such a requirement is not even written in any of the guidelines or regulations issued by governments. The EAs in several countries (e.g., Bangladesh, Indonesia, and Pakistan) were found to be extremely cautious in taking initiatives; they seek approval of their higher authorities at every step of the selection process to avoid taking responsibility. Such practice opens up the process to more interference. B. Frequent Change in Project Directors by this study point to the frequent replacement to delays in the recruitment of consultants in the projects with various degrees of familiarity also resulted in the reevaluation of proposals

36. A review of the projects covered of the project directors as a contributing factor many cases. Various project directors come to with Bank procedures. Such frequent changes

12
ultimately resulting in unnecessary delays in the engagement of consultants.' It is therefore desirable that project directors are not frequently changed. The PRC is the exception among the countries reviewed because project directors in the PRC are appointed at an early stage and serve continuously from the beginning to the completion of the project. At the other extreme are some Bank projects in Bangladesh where project directors were changed quite frequently."

c.

Difficulties

in the Use of Advance

Action

37. The Bank encourages the use of advance action to reduce the time required for the engagement of consultants, thereby minimizing delays in project implementation. However, the study found that in several cases where advance action was agreed with the EA, it could not be pursued because of formal rules and or informal practices in the concerned DMC. The agreement of the advance action could not be put into effect because of the need for prior approval of the project by planning or other higher authorities in many of the RETA countries, lack of explicit budget provision for the activities it entails, or, as experienced in all the countries, the need for the loan to be effective first. The provision of advance action in several projects covered by this review (except in the PRC) was found to be less effective in fielding the consultants soon after loan effectivity. In Viet Nam, where advance action was taken for most of the projects, with the technical proposals in fact being received before loan approval, the EAs felt that they could only proceed with evaluation of the proposals after the loans were signed. While the facility of advance action for consultant recruitment was somewhat less effective, the potential gains from it in terms of shortened time in consultant engagement remain valid. To materialize such gains, the appraisal missions need to examine any factors that may inhibit the EAs from such gains and accordingly make appropriate arrangements so that a number of up-front activities relating to consultant engagement can be undertaken, thus facilitating expeditious project implementation. D. Lack of Transparency of the Selection Process

38. In many cases, the selection of consultants takes place in an environment that is not transparent. Consultancy contracts are considered lucrative in many quarters, often because they can be springboards for downstream benefits. Except in the PRC, by and large the responses betrayed existence of lobbying and malpractices to influence the selection of consultants, in many cases at different levels-starting from the project office, through the EA, and the ministry with active involvement of domestic and international consultants. Nonetheless, it was implied that lobbying takes place in different manners. Consultants resort to lobbying to be included in the shortlist and then for winning the award of contracts. In most RET A countries, it appeared that some consulting firms, through their connections at various levels of the government, were able to influence the formulation of the TOR and even the LOI in their favor. In several of the projects reviewed for this study, the delays in the engagement of consultants at various stages (but mostly in the shortlisting and evaluation of proposals) were attributed to some forms of lobbying. It appears that there are ways of getting around the
It is difficult to ascertain the real motive of such repeated evaluations, whether to get the desired ranking or to promote fairness by undoing the possible and perceived unfairness in the earlier evaluation. Irrespective of the motive, the result is inevitable delays and the avoidable costs associated with them. Recently, the Bangladesh CPRM and the local aid consultancy group recommended that key ministries (i) retain project directors for the project life with provision of career development and (ii) that they recruit and train procurement specialists for civil works, equipment, and consultancy recruitments, and that these experts be assigned to the EA evaluation committees.

2

13
strictures of the Guidelines without violating formal procedures, and thus influencing the evaluation and ranking. Even the individual international consultants and consulting firms interviewed for this study admitted the preponderance of influence peddling. In some countries, certain favored firms were able to gain access to information that is kept from others. The extreme case was that of one country where the winning firm even got hold of the proposals of the other shortlisted firms. While it is extremely difficult to pinpoint when it is happening, certain measures may have to be taken by the Bank (including the possible provision against fraudulent practices in the Bank's Guidelines) with the cooperation of the borrowers to limit, if not to totally eliminate, lobbyinq.'

E.

Delays on the Bank Side

39. The Bank's insufficient attention to the institutional strength and weaknesses of the EAs during project appraisal and fixing unrealistic timetables for the recruitment of consulting services are important factors that cause delays in consultant engagement. The EAs for two projects in the Philippines and Indonesia were required to accomplish the recruitment of several consultants from multiple disciplines simultaneously. Such an arrangement displayed either overestimation of the EA's organizational capability or inadequate appreciation of their limitations-either way leading to delays. 40. While many RETA countries took more time to obtain clearance at various stages in the consultant selection process, the Bank itself was not totally immune from shortcomings albeit to a lesser degree. For instance, in the Second Health and Family Planning Services Project in Bangladesh, it took 2.5 months for the EA to obtain Bank concurrence for its evaluation of proposals. In another project in Indonesia e.g., BogorPalembang Urban Development Project, the EA submitted the TOR and other documents to the Bank for approval soon after the loan was declared effective. The Bank, however, took more than one year to give its approval. Apparently, this took place at a time when the Bank was going through a significant organizational change. The fact, however, remains that project implementation suffered on account of the Bank's tardy response. 41. Under PAl 1.01 (since 1994), the appraisal missions are required to accomplish a PAM2 for every project. However, a number of projects during this period did not have a PAM. Indeed, in one of the projects in the PRC,3 despite repeated requests, the Bank did not provide the EA with a PAM. Providing the EAs with a PAM would assist them in recruiting

2

3

It may be observed that many of the RETA countries also brought out the issue of apparent occasional lobbying by some Bank staff during the project processing/implementation stages. As emphasized in the Working Paper on the Bank's Anticorruption Policy (November 1997), if the Bank's efforts to reduce illicit behavior among the DMCs are to be credible, it is essential that such a perception among the DMCs is totally erased, the Bank staff remain beyond reproach, and the Bank's internal regulations and procedures support the highest ethical standards. The Bank should consider issuing appropriate staff instructions precluding them from any explicit or implicit lobbying during project processing and implementation stage. The preparation and discussion of the PAM during appraisal is mandatory and must support the appraisal memorandum of understanding (MOU). The PAM includes an implementation schedule that takes into consideration all the critical activities, the time required to complete them, and their relationship with other activities. Specifically, the PAM should describe the consultant positions required to be recruited along with the TOR, and make reference to the implementation schedule where each step of the recruitment process and its timing are shown, e.g., TOR, shortlist, evaluation criteria, draft contract, Bank approval/concurrence, invitation letter, proposed submission, evaluation, Bank concurrence, negotiation, and mobilization. Loan No. 1387-PRC:Hebei Expressway Project, for $220 million, approved on 28 September 1995.

14 consultants within the time-frame set and agreed upon for each activity. This is of particular importance to the relatively weak and inexperienced EAs. F. Absence of a System for Monitoring Delays

42. The study indicates that in most of the countries covered, there is no system for monitoring, or of whistleblowing when the selection of consultants is delayed. In most cases, the Bank expresses its concern to the EA officials (copied or through its RM). When delays get longer, information is sent to the department or ministry head. These have not had any significant impact on the reduction of delays. In some cases, the Bank has put pressure, pointing out the possibility of loan cancellation (of the consultancy component) if delays persisted. In only one case in Pakistan where the delays were nearly three years did the Bank cancel part of the loan. In the same country (Pakistan), in another project, when the Bank threatened the cancellation of the loan, several important decisions were made in one single day, helping facilitate the consultants' recruitment. In another case, the Bank informed the EA that the follow-up project for Board consideration could be delayed unless the consultant recruitment process was speeded up. While discretionary actions like these have helped specific projects, they have not been able to bring significant impact in improving the system. The Bank's RMs could playa powerful role in effecting such early warning systems. To achieve this, the RMs need to be strengthened in various aspects of project implementation by providing them with the authority and making them accountable for the output. IV. CONCLUSIONS AND RECOMMENDATIONS

43. Experience with the engagement of consultants is particularly unsatisfactory in most of the projects covered by the review. Some contributing factors are Bank-related and are, therefore, easier to address, while others are viewed as internal matters to the DMCs and, hence, their prerogative. Aspects under the control of the Bank can be addressed through enforcing project administration instructions already issued. For those factors considered the governments' prerogative, it is imperative that the Bank enter into a serious policy dialogue with the DMCs. 44. Some of the recommendations are proposed for immediate implementation, while others are for the medium term. There are divergent views expressed in certain recommendations proposed. Given the complexity, sensitivity, and perennial nature of the issue, a working group headed by a senior staff may be constituted with representatives from Projects/Programs Departments and from COSO, PEO and other concerned departments/offices to study these recommendations prior to their implementation.

A.

Recommendations for Immediate Considerationllmplementation 1. Areas of Policy Dialogue with the DMCs

45. The timely engagement of consultants contributes to expeditious project implementation, but this also calls for good governance and increased transparency in the process of consultant selection in the DMCs. Furthermore, certain improvements in the governments' administrative procedures could also potentially improve such processes. Understandably, the solution to these issues can come only from the DMCs; the Bank has obvious limitations on its capacity to bring about changes in these areas directly.

15

46. The issue of delay in the engagement of consultants pervades most projects across sectors in most of the borrowing countries and hence should be taken up by the Bank in its policy dialogue with the DMCs. Given its country focus, the Programs departments (assisted by the Projects departments for specific details) should raise the issue during crosssectoral policy discussions such as the programming mission and the CPRM. Areas of discussion could include (i) making the process of consultant selection in the DMCs more transparent; 1 (ii) providing the EAs with increased authority and responsibility in the selection process and encouraging them to exercise their authority by creating an enabling environment; (iii) allowing efficient project directors to continue with minimum disruption and dislocation during the life of the project:" (iv) setting an early warning system to detect delays, e.g., 50 percent time overrun in each stage of consultant selection could trigger such warning for immediate action by the governments and the Bank; (v) advising the DMCs of the Bank's willingness to assist them by directly participating in the consultant selection process when requested by the EA/government, particularly in those cases where consultant services are required up-front in project tmplernentatlon:" (vi) alerting the DMCs of the Bank's readiness and seriousness in canceling loans (the amount depending on specific situations) when satisfactory progress is not demonstrated," and (vii) forewarning the DMCs that the Bank will audit consultant's contracts when evidence warrants. 5 To make policy dialogue more effective, the Bank may also explore the possibility of raising these issues with the DMCs jointly with other bilateral and multilateral lending institutions in the country as already being practiced by the Bank's RMs in Jakarta and Dhaka. 47. The success of policy dialogue will hinge on the Bank's own preparedness in pursing the issues raised and initiating actions when mutually reached understandings are not observed. In instances of disregard for transparency and occurrences of fraudulent practices (with demonstrable evidence), the Bank should be prepared to audit such cases as a deterrent to further similar practices elsewhere in the future.

2

3

4

5

While procedural improvements on the part of the DMCs will help to keep the consultant selection process transparent, the Bank may also require (or provide option to DMCs) to seek a written integrity pledge from the consulting firms (including individuals) that they would not resort to unethical practices as they bid for prequalification, shortlisting or contract awarding. In the event of the Bank finding conclusive evidence of such cases, the firm (or individual) will be barred from competing on future Bank-assisted projects for, say, two years. Until at least project implementation is well underway, thereby avoiding the need to rebid/rerank that has resulted in certain cases due to the frequent turnover of project directors. Such sentiments on the useful role that could be played by donors in the consultant selection process was expressly stated in Pakistan. It is the EA's concern over the project for timely implementation that motivates it to approach the donor for direct participation in the selection process, not its sense of nonownership over the project. Clearly this will exert an additional workload on Bank staff. However, considering that it helps promote good governance, transparency, and expeditious engagement of consultants, the efforts may be worth carrying out. Currently loan cancellations are practiced on an ad hoc basis. To be an effective deterrent to excessive delays in consultant selection, a more institutional procedure for loan cancellation needs to be worked out and enforced. There are cases where consultants' contracts seem to be padded to provide room for payoffs. In one case in Pakistan, the Bank was able to lower the contract by about 50 percent without changing the TOR. Yet in another case in Bangladesh, the Bank has required the EA to renegotiate the contract to remove about 30 percent of the contract amount. An audit of such consultants' contracts (before Bank approval) will also send a strong signal of the Bank's seriousness on this issue.

16
2. Selective Provision of Simplified Technical Proposal to the DMCs

48. In streamlining the procedures, the Bank recently adopted a simplified technical proposal procedure in the engagement of TA consultants. In cases where the Bank is satisfied with the EAs' transparent approach to consultant selection, the Bank may consider allowing them to use the simplified technical proposal procedure for contracts of a limited amount, e.g., $1 million or less.1 Once the recommendation is accepted, the indicators to measure the eligibility of the EAs can be worked out. 3. Rigorous Enforcement of PAM and PAis

49. The Bank issued important instructions in PAl 1.01, 1.05, 3.01, and 3.02 relating to the preparation of the PAM and the engagement of consultants, including the preparatory work during or prior to project appraisal. However, these instructions are not followed in most of the projects. Now the Bank must ensure that these instructions are effectively carried out by its staff. These consist of (i) preparation of the PAM2 by mission leaders during or prior to project appraisal; (ii) provision of various documents as elaborated in a checklist to the EAs with model forms and discussion of such documents with them during appraisal; and (iii) encouragement of EAs to submit all documents requiring Bank concurrence during loan negotiations at the latest." As a next step, the Bank should require the DMCs to submit a consultants' shortlist as a condition for loan negotiation. Such a requirement, which is already being done in a number of projects, can be expected to greatly reduce the scope for undue interference that takes place in the process of shortlisting. While argument can be made that this would simply advance the interference/lobbying to an earlier phase of project processing, such interference, even if it continues, will be more brief because of the imposed condition. Furthermore, delays resulting from such interference after loans have been declared effective carry additional costs to DMCs in terms of interest costs and/or commitment charge payments (apart from deferred project benefits). However, in imposing such a condition, the Bank has to be prepared for the potential risk of some loans slipping to the following year on account of some DMCs not being able to comply on time. 4. Advance Action Facility

50. In providing for advanced action, an appraisal mission must review the existing domestic guidelines and practices in the DMC that may hinder the successful use of this facility. Where advanced action is hindered by the nonavailability of funds in the DMC prior to their governments' approval and/or allocation of budget for the project, the borrowing DMC must be advised to make a lump provision budget from which financing for such expenditures can be drawn. In any case, the mixed performance of this facility should not be the reason to discard it, but actually to improve it to make it more effective. This facility has helped expedite project implementation in some of the DMCs, e.g., the PRC, and this should continue to remain as a facility available for DMCs.
Such an approach of selective rather than blanket provision of the simplified technical proposal will act as an incentive to other EAs and DMCs to maintain transparency in their process of consultant selection. PAl No. 1.05 Project Administration Memorandum (July 1996). Responding to the Bank and the World Bank Group, consideration is being given by BAPPENAS (Badan Perencanaan Pembangunan Nasional, or the National Development Planning Agency) in Indonesia to mandate the EAs to complete all of the up-front activities required in the engagement of consultants prior to loan negotiations.

2 3

17

5.

Substitution

of Experts by Consulting

Firms

51. The substitution or replacement of experts under consultancy contracts must be more firmly discouraged except in the case of excessive delays in the selection process (outside the control of the consulting firms) or in case of force majeure. As a deterrent, the LOI should incorporate a clause for a locked-in period that, except in the above cases, no substitute proposals (particularly for the team leader and other key personnel) will be entertained for a minimum of say, nine months and that, if the firm is not able to meet the requirement, it will be made ineligible to bid for Bank projects for the succeeding 12 month period.' 6. Increased Role of COSO and Improvement of Its Training Programs

52. COSO should carry out familiarization seminars for Bank mission chiefs as the requirements in various Bank PAis are enforced. COSO's role and support to appraisal missions need to be further encouraged (either before the mission or, where possible, by providing mission members). Apart from assisting the project appraisal, the participation of COSO staff in the such missions will enable COSO to establish rapport with EAs. In case of consultancy problems at a later stage, such rapport will facilitate addressing the issue. Considering that a number of consultancy-related documents are required to be submitted by the DMCs during loan negotiations, the Bank should also involve COSO staff in such negotiations. On the DMC side, the participation of project directors in negotiations should be made obligatory. 53. COSO also needs to improve the training programs it carries out in the DMCs in terms of (i) the professional skill of resource speakers, (ii) the content of training proqrarns, and (iii) the method of conducting programs. Such proposals were also made earlier by the training division of the Budget, Personnel and Management Systems Department. 2 COSO should also lay down appropriate criteria for the selection of the DMC participants in its seminars, and rigorously enforce these to capture the right kind of participants. B. Recommendations 1. Enhancing for the Medium Term Domestic Consulting Capability

54. The Bank's Guidelines encourage enhancing the DMCs' domestic consulting capability to the extent where such domestic expertise could diminish and eventually replace the need for international consulting services. To support this, the Bank has provided several TAs and conducted a number of seminars in various DMCs. The impact of such efforts, however, has been mixed. As a medium-term solution to the consultancy issue, the Bank, by way of capacity-building efforts, may carry out surveys of the domestic consultancy industry in the DMCs. Based on the findings, the Bank may take measures through systematic planning of
Some of the comments received even propose "financial penalties on consulting firms, large enough to exercise a deterrent impact." The current Bank Guidelines make only vague provision that "the CSC will determine what course of action, if any, should be taken" in the event of substitution for uncompelling reasons. See the evaluation by BPTD of COSO's seminars on the Use of Consultants Services in India (August 1996), and the seminar on Project Implementation Arrangements in Sri Lanka, April 1995.

2

18
its TA facilities and other methods, for helping build up the domestic consulting various DMCs. 2. Monitoring Delays and the Performance of Consultants capacity in

55. A structured system should be designed for close supervision and effective monitoring of delays as well as the performance of consultants by the EAs. This can be a joint regular exercise by the EA and, if present, the Bank's RM. Such monitoring should also cover the effectiveness of the transfer of technology, wherever appropriate. This will also help identify non performing consultants who could be excluded from consideration for selection in future projects.' 3. Increased Role for the EAs During the PPTA Stage

56. It was noted that the inputs from the EAs (i) in the selection and engagement of project preparatory TA consultants, and (ii) in the preparation of feasibility studies are too minimal to give them any sense of ownership over projects. The study found a convergence of views among the RET A countries that allowing a bigger role to the EAs at the project preparatory TA stage including in the engagement of consultants will help generate their sense of ownership and acceptance of the proposed consultants' inputs into projects and expedite the process.

Some DMCs have suggested that the Bank should consider instituting a mechanism whereby payments of consultants will be based on their satisfactory output as determined jointly by the governments and the Bank.

19
APPENDIXES

Number

Title

Page

Cited On (page, para. ) 3,9 3, 12

1 2

List of Projects for the Study Country Profiles

20
21

3

Checklist of Actions to be Taken by the Mission Leader During the Appraisal Mission and Loan Negotiations with Regard to the Recruitment of Consultants 41

9,28

20

Appendix 1

LIST OF PROJECTS SELECTED FOR THE STUDY Project Name Loan No. Loan Amount ($ million) 99.80 51.00 31.00 3.15 23.40 72.00 140.00 77.00 116.00 220.00 45.00 300.00 140.00 150.00 32.80 62.16 46.00 120.00 164.00 23.50 17.50 41.00 76.50 65.00 79.98 66.00 120.00 Date of Approval 13 Oct 1988 10Jan1991 16 Nov 1993 16 Dec 1993 2 Mar 1995 5 Nov 1996 25 Nov 1993 30 Jun 1994 27 Sep 1994 28 Sep 1995 18 Jul19S1 25 Jul1991 31 Oct 1991 23 Jan 1996 24 Sep 1992 8 Mar 1994 31 Jan 1995 27 Oct 1988 14 Dec 1993 29 Sep 1994 10 Nov 1994 24 Nov 1994 26 Oct 1993 29 Nov 1993 8 Jun 1995 17 Aug 1995 21 Nov 1996

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27.

Rural Infrastructure Development Second Health and Family Planning Services Second Water Supply and Sanitation Southwest Area Water Resources Development Coastal Greenbelt Jamuna Bridge Access Roads Tangshan and Chengde Environmental Improvement Yunnan-Simao Forestation and Sustainable Wood Utilization Hunan Lingjintan Hydropower Hebei Expressway Inland Waterways Power XXI Bogor and Palembang Urban Development North Java Road Improvement North-West Frontier Province Area Development Third Punjab On-Farm Water Management Punjab Rural Water Supply and Sanitation (Sector) Fourteenth Power (Sector) Power Transmission Fourth Road Improvement (Supplementary) Rural Infrastructure Development Airport Development Irrigation and Flood Protection Rehabilitation Ho Chi Minh City Water Supply & Sanitation Rehabilitation Power Distribution Rehabilitation Provincial Towns Water Supply and Sanitation Second Road Improvement

908-BAN(SF) 1074-BAN(SF) 1264-BAN(SF) 1291-BAN(SF) 1353-BAN(SF) 1478-BAN(SF) 1270-PRC 1304-PRC 1318-PRC 1387-PRC 1089-INO 1092-INO 1111-INO 1428-INO 1179-PAK(SF) 1297-PAK(SF) 1349-PAK(SF) 914-PHI 1288-PHI 1322-PHI 1332-PHI 1333-PHI 1259-VIE(SF) 1273-VIE(SF) 1358-VIE(SF) 1361-VIE(SF) 1487-VIE(SF)

Source: Loan, TA and Private Sector Approvals, ADB.

21 COUNTRY PROFILES

Appendix 2, page 1

A.

Bangladesh

1. Bangladesh has been a recipient of development assistance from the Bank since 1973. The Government has well-articulated guidelines and instructions on planning, processing, and implementing technical assistance. The current guidelines and instructions were issued by the Economic Relations Division (ERD) in 1992, following a high-level expert review in 1991 and approval of the Executive Committee of the National Economic Council. The guidelines recognize that the appointment of consultants is a crucial element in the project cycle, but that they should not be appointed if there is no felt need. International consultants need not be appointed when domestic expertise is available. 2. The shortlist is prepared by the executing agency (EA) on the basis of a detailed examination of the experience and capabilities of the firms from a longer list that may be obtained from the ERD roster of consulting firms, advertisements in local and international newspapers, journals, or by circulating copies of notices for consultancy services to embassies of aid-sponsoring countries in Bangladesh and international Bangladesh embassies, depending on the importance of the work. The detailed evaluation of the technical and financial proposals of the firms is made by a standing evaluation committee within the EA, which may consist of three to five members with provision for co-option. If the financial cost of the consultancy is within the limit of the financial powers of the EA (Tk10 million), the implementing agency can take the final decision. If the cost is above the limit, the recommendations of the standing committee are forwarded to their Administrative Ministry (up to Tk25 million) for approval by the minister. Consultancy services costing more than Tk25 million are referred to the Council Committee on Government Purchase. The entire process is expected to be completed within seven months. The actual experience shows that this schedule is met for small and simple projects. For large and complex projects, such as those funded by the Bank, the process takes more than seven months, even up to two years. 3. In preparing the profile for Bangladesh, six projects, five OIngoing and one completed, were examined. These were Loan No. 908: Rural Infrastructure (Completed); Loan No. 1074: Second Health and Family Planning Service; Loan No. 1264: Second Water Supply and Sanitation; Loan No. 1291: Southwest Area Water Resources Development; Loan No. 1353: Coastal Greenbelt; and Loan No. 1478: Jamuna Bridge Access Road (Table 1).1 Interestingly, for the projects covered by the review, the provisions of the Sank's Project Administration Instructions (PAl) as it applies to the engagement of consultants were discussed with the EA staff concerned. They were even provided with the draft letter of invitation (LOI), draft evaluation criteria, and longlist of consultants. Yet, unusual delays were experienced in various stages of the process. It took the Rural Infrastructure Project 20 months to complete the engagement of consultants because of the long time it took the Government authorities to give their approvals. This delay in the engagement of consultants combined with
Loan No. 908-BAN(SF): Rural Infrastructure Development, for $99.8 million, approved on 13 October 1988; Loan No.1 074-BAN(SF): Second Health and Family Planning Service, for $51 million, approved on 10 January 1991; Loan No. 1264-BAN(SF) Second Water Supply and Sanitation. for $31 million, approved on 16 November 1993; Loan No. 1291-BAN(SF): Southwest Area Water Resources Development. for $3.15 million, approved on 16 December 1993; Loan No. 1353-BAN(SF): Coastal Greenbelt, for $23.4 million, approved on 2 March 1995; Loan No. 1478-BAN(SF): Jamuna Bridge Access Roads, for $72 million, approved on 5 November 1996.

Table 1. Bank Loan Projects Studied, Bangladesh Actual Dates of Selection Procedures Activities Loan No. 908(SF): Rural Infrastructure Development Project
13 Oct 1988 23 Nov 1988 01 Feb 1989 99.80 ($ m;lIion) Engineering Selection Procedures - Advance Action/Retroactive • Project Administration • Submission Evaluation • Submission Financing (PAM) 5.82 Local Government Department WO NR Ministry

Loan No. 1074(SF): Second Health and Family Planning Services Project
10 Jan 1991 25 J"11991 28 Oct 1991 51.00 4.15 of Health and Family Planning

Loan No. 1264(SF): Second Water Supply and Sanitation Project
16 Nov 1993 10 Dec 1993 22 Jun 1994 31.00 2.51 Department of Public Health Engineering

Loan No. 1291(SF): Southwest Area Water Resources Development Project
16 Dec 1993 23 Dec 1993 22 Mar 1994 3.15 0.744 Bangladesh Development WO NR Water Board

Loan No. 1353(SF): Coastal Greenbelt Project

Loan No. 1478(SF): Jamuna Bridge Access Roads Project
05 Nov 1996 09 Jan 1997 01 Apr 1997

Loan Approval Loan Signing Loan Effectiveness Loan Amount ($ million) Consultancy Executing Services Agency

02 Mar 1995 18 Apr 1995 28 Jul1995 23.40 0.47 Forest Department

12.00
6.98 Roads and Highways Department

W
NR January 1992
b

W
NR

W
W July 1995

W
WO Prior to loan approval

Memorandum

of TOR. draft LOI, and Criteria ofTOR, LOI of Shortlist of Shortlist

• Bank Approval • Bank Approval • Issuance of LOI • Submission

January March 1992

1997" August 1996 31 Aug 1996 31 Oct 1996 24 Aug 1997

of Proposals of Ranking

25 Jun 1992 03 May 1993 24 May 1993 August 1996 28 Jan 1997 24 Jun 1997

• Evaluation/Ranking • Bank Approval • Contract • Contract Signing

Negotiation I\) I\)

W :;: with; wo:;:

without,

NR :;: not required: consultants

TOR

= terms

of reference;

lOI

;; leUer of invitation.

The process

of engaging

took 20 months consultancy services.The recrtMt~nt of the hospital planning consUltant took eight months, while took

Refers to the architectural

and engineering agency

the 16

engagement months

of of the medical

procurement

consultants

took more than three years. took eight months

In July 1994,

the executing of proposal

(EA) proposed

to resort

to sale sourcing

of consultants, the project

which the Bank did not agree to. Shortlisting scope in February offinns.

from loan approval 1997.

to the submission

of the list, 'Nhile ranking

from submission

to Bani( approval

of ranking.

The Bank had to reduce and the Ministry

1996 to meet the completion However,

date of September

As early as 14 Nov 1996, the EA had sent to the Ministry in an stages of the process As of the writing ror the preparatIon The process Source: Bangladesh The documents were submitted

sent to the Bank a shortlist to the delay. of the ranking. submission

it took the EA a long time to finalize

the engagement.

Both the Economic

Relations

Division

(ERO)

and the Ministry

had to be involved

one at a time adding the Council's

of this report, of

the Bank and the EA are awaiting 'fIriU eommence soon.

approval

The Bank has approved of documents

the draft consultant's

contract

for design review

and construction

supervision

of civil works.

Contract

negotiations

for

future

road projects

The Bank

;s stilla\Ycliting

by the EA for the Road Safety

Study

component.

of engaging Country

consultants Profile.

took more than three years.

23

Appendix 2, page 3

delays in procurement of equipment and late award of contracts were responsible for the slow pace of the implementation of the Project. 4. The total time taken for the engagement of consultants for the Second Health and Family Planning Services Project was more than three years. The bulk of the delay was in the evaluation of the proposal stage with the evaluation of proposal for the architect and engineer, for example, taking about ten months. A simple reply of receipt to the Bank's concurrence took 2.5 months. The original closing date of the loan had to be extended by one year. The Second Water Supply and Sanitation Project was beset with Government procedural delays starting with a seven-month gap between loan approval and effectivity. The evaluation of proposal for one supervision consultant took six months. Overall, Project implementation was delayed, with the physical progress at the time of this review (August 1997) being unsatisfactory at 22 percent only. For the Southwest Area Development Project, shortlisting was reported to have taken 16 months because the EA decided to switch to "sole sourcing" contrary to what was agreed with the Bank. The evaluation of proposals and ranking also took eight months to complete because of political intervention. The Government Council Committee even ordered a high-level inquiry that confirmed the earlier reported findings. The progress of the Coastal Greenbelt Project was very slow largely because of delays in upfront activities, i.e., selection and engagement of consultants. The effectivity of the loan was in July 1995 and as early as one month after effectivity, the Bank requested the shortlist from the EA. It took them five more months to submit the list. The delay was attributed to the inefficient and inexperienced Project management staff. The Bank had to warn the EA that the loan would have to be canceled if further delays occurred. It took another year for the ranking to be completed. It appeared that the Ministry was very much involved forming committees at each stage of the process, i.e., shortlisting, evaluation, and ranking, etc. 5. The remaining two projects went through similar delays. Advance procurement action was approved for the Jamuna Bridge Access Roads Project, which was approved in November 1996. Tenders for the civil works were invited in July 1996, and the financial bids opened in December 1996. The Bank approved the contract awards in March 1997. The loan documents require the supervision consultants to be engaged before the signing of civil works contracts because these consultants have to review the contractor's work plan and other activities before actual work starts. However, consultants have not yet been recruited, precluding the signing of civil works contracts and effective start of the Project. While the LOis to the shortlisted firms were sent out prior to loan approval, it took almost one year before the EA sent the final evaluation report to the Bank on 24 August 1997, after which the recommendation was submitted to the council committee for approval. There was a change in the chief engineer who disagreed with the earlier evaluation ranking and conducted another evaluation, the result of which was different from the first. The Ministry then formed another committee to hold another evaluation. The first-ranked firm was different in each of the three evaluations. The consultants' contract was signed in October 1997 with the four civil works contracts being signed on the same day as well. Because of these delays, however, the construction of the critical approach road will be delayed by two years, working seasons will be lost, and the full benefit of the Project cannot be realized for two years. 6. The experience in these projects in Bangladesh reveals a Significant departure from the Government guidelines with ministries forming committees headed by ministry officials. These officials decide on matters that clearly are the functions of the EAs. It was implied that there were unwritten instructions from ministries to the EAs to send the documents to them for approval. The Government procedures requiring multiple levels of approval for all

24

Appendix 2, page 4

major decisions are made worse by the frequent changes of the project directors. Except for the Rural Infrastructure Project, which had two project directors for 4- and 3-year terms respectively; the Second Health and Family Project had as many as five project directors; the Coastal Greenbelt Project had three with the first project director retiring two weeks after receiving Bank training on the PAl; and the Jamuna Bridge Project had three with the incumbent being appointed only three months ago. It is also a widely held view of international consultants in Bangladesh that there is lack of sufficient confidentiality in the evaluation of technical proposals in the Government. They complain of undue political influence and pressures on the EAs. Favored consultants are able to gain information about the evaluation process and are thus able to influence some members of the evaluation committees.

B.

People's Republicof China

7. The People's Republic of China (PRC) joined the Bank in 1986 and since then has been quite active in availing Bank loans for its key projects. By the end of 1996, the PRC had received about $6,378 million for some 59 projects. So far, ten of the projects were completed and all were assessed as generally successful. Notwithstanding the satisfactory performance of projects in the PRC, delays in the recruitment of consultants featured as well in some of these projects. 8. The consulting industry in the PRC started as early as the 1950s when all the line ministries established their own design and research institutes. Such institutes are Stateowned and started contracting their services to other ministries and provincial agencies. Some cooperatives and private consulting companies were then formed. Over the years, the technical expertise of these institutes greatly improved. With the opening up of the country and instituting reform policies in pursuit of the market economy, the country gradually became familiar with the procedures and methods of international consultancy services. Soon it was participating in international competitive bidding for various engineering works. In 1992, the China National Association of Engineering Consultants was founded, which has more than 3,000 consulting firms and 300,000 consulting engineers as its members. In 1996, the PRC became a member of the Federation Internationale des Ingenieurs Conseils. 9. The State Planning Commission (SPC) is responsible for planning and coordinating the country's public investment program and for approving large foreign public and private investment proposals. The selection of the projects for bilateral and multilateral loans falls under the purview of SPC. The People's Bank of China is the counterpart organization for coordinating and administering all Bank operations on behalf of the Central Government. The Chinese Government does not have official guidelines for the engagement of consultants. Instead, it applies the guidelines of the lending institutions, e.g., the Asian Development Bank, the World Bank. The Government has, however, set up a series of regulations on the use of foreign funds, with an emphasis on importing advanced technologies and expertise, and encouraging collaboration between foreign and domestic consulting firms. It continues to improve its economic and law system in line with international practice. Currently, the Government is formulating a draft bidding law and corollary procurement and implementation regulations that will include provisions on the procurement of consultancy services. 10. experience Four case projects were selected to assess the Bank's and the Borrower's in consultant engagement, i.e., Loan No. 1304: Yunnan-Simao Forestation and

25

Appendix 2, page 5

Sustainable Wood Utilization; Loan No. 1318: Hunan Ungjintan Hydropower; Loan No. 1387: Hebei Expressway; and Loan No. 1270: Tangshan and Chengde Environmental Improvement.' During loan processing, it was agreed that advance action would be taken for the four case projects, which means that the selection process for consultants starts prior to loan approval and signing. With advance action, it is generally planned that selection and engagement of consultants will take six to seven months. 11. Except for the Tangshan and Chengde Environmental Improvement Project, where all the required documents for the engagement of consultants were prepared by the Borrower and approved by the Bank four months prior to loan approval, the other projects started the consultancy processing only after the loans were approved. The EAs felt that the arrangements for the consultancy services could only be done after loan approval. Compared with the planned time in the Project Administration Memorandum (PAM), the delay in the Yunnan-Simao Forestation and Sustainable Wood Utilization Project was about one year and it was seven months for Hunan Ungjintan Hydropower Project. The Hebei Expressway Project took seven months to engage the consultants, which according to the EA was within their planned timetable. The PAM was not made available by the Bank to the EA to be able to compare the actual dates with the planned schedule. Nonetheless, since advance action was also taken for the Project, it will be right to say that some minimal delay was experienced. The loan was approved on 28 September 1995 but the preparation of the documents required started only in December 1995. 12. The details of the selection procedures for each of the four projects are given in Table 2. Overall, however, the process of selecting consultants in the PRC is smooth and, once started, is generally completed within the normal cycle time of six to seven months. Some of the reasons why this is so are as follows: (i) The approval procedure is straightforward without numerous bureaucratic layers. Once the project is approved by the SPC, the EAs, through the project managers, are given the decision-making power for all the stages of consultant engagement, both administrative and financial. The EAs are responsible for establishing the necessary committees in charge of evaluating the proposals and other activities related to engagement of consultants. The Bank's Guidelines on the Use of Consultants by Asian Development Bank and its Borrowers is generally adopted with the EAs continuously seeking assistance and advice from Bank staff from the Projects departments in the preparation of terms of reference (TOR), and shortlisting through the drafting of contracts. The Government ensures that the project managers are not changed throughout the implementation period. The main technical personnel of all the projects reviewed have stayed resulting in familiarity with and continuity of the various tasks involved.

(ii)

(iii)

Loan No. 1304-PRC: Yunnan-Simao Forestation and Sustainable Wood Utilization, for $77 million, approved on 30 June 1994; Loan No. 1318-PRC: Hunan Lingjintan Hydropower, for $116 million, approved on 27 September 1994; Loan No. 1387-PRC: Hebei Expressway, for $220 million, approved on 28 September 1995; and Loan No. 1270-PRC: Tangshan and Chengde Environmental Improvement, for $140 million, approved on 25 November 1993.

Table 2. Bank loan Projects Studied, People's Republic of China Actual Dates of Selection Procedures .Activities Loan No. 1270: Tangshan and Chengde Environmental Improvement Project 25 Nov 1993 22 Mar 1994 9 Jun 1994 140 1.23 Tangshan Municipal
Government

Loan No. 1304: Yunnan-Simao Forestation and Sustainable Wood Utilization Project Pulp Mill Component Forestry Component 3o.)un 1994 30 Mar 1995 28Jun 1995
77

Loan No. 1318: Hunan Lingjintan Hydropower Project 27 Sep 1994 2 Mar 1995 30 May 1995 116 2.2 Hunan Electric Power Company

Loan No. 1387: Hebei Expressway Project

Loan Approval Loan Si9ning
Loan Effectiveness Loan Amount ($ million) Consultancy Services ($

million)

038 Yunnan Department of Forestry Yunnan Yun-Jing Forestry and Pulpmill Company Limited

0.57

28 Sep 1995 9 May 1996 2 Ju11996 220 0.8
Hebei Province Communications

Executing Agency

Department

Selection

Procedures

Advance Action Project Administration Memorandum (PAM) Submission atTaR, draft LOI, and
Evaluation Criteria

WO W 1 Jul1993

W W
1 Jan 1995

W W
1 Dec 1994

W WO 1 Jan 1995

W WO(despite requests from EA) 1 Dec 1995

Bank Approval of TOR, LOI Submission of Shortlist Bank Approval of Shortlist Issuance of LOI Submission of Proposals Evaluation/Ranking
Submission of Financial Contract Negotiation Proposal

Bank Approval of Negotiation Contract Signing

26 Jan 1995 10 Mar 1995 18 Apr 1995 6 Nov 1995 1 May 1996 1 May 1996 7 May 1996
LOI "" letter

1 Dec 1994 1 Feb 1995 25 Mar 1996 10 Apr 1996 1 Jun 1996 1 Jul1996 17 Dec 1996

13 Feb 1995 11 Apr 1995 23 Apr 1995 15 Jun 1995 3 Jul1995 3 Jul1995

5 Mar 1996 5 May 1996 10 Jun 1996 12 Jul1996 13 Jul1996 15 Jul1996

N 0>

w = with: wo - without
• The consultants decided Source: to

TOR

= terms of reference: were recruited

of invitation .
for subproject for subproject 3. which had a delay of 45 days. This delay occurred 3 as weH. because none of the shortlisted firms submitted a proposal. The EA with concurrence from the Bank

for the six Subprojects the consultants

on time except

d~signate

of subproject

4 as consultants

PRC Country

Profile

-0 -0

»
CD ::J Q.

X'
Ql CD

N -0 to
(J)

27

Appendix 2, page 7

(iv)

In addition to encouraging the EAs to attend the seminars conducted by the Bank, the People's Bank of China itself regularly conducts training courses and seminars on the Bank's operations and procedures for the various EAs. Even the EAs that have already handled Bank projects share their experiences with the new EAs. The EAs take advantage of the facility for advance action as much as possible, usually starting upon loan approval, by keeping to the planned schedule for selecting consultants at appraisal.

(v)

c.

Indonesia

13. In July 1994, the National Development Planning Agency (BAPPENAS) of Indonesia issued a Ministerial Regulation, to regulate the tendering and contracting of consultancy services. The regulation basically prescribes a two-envelope system. The Government elaborated these regulations by prescribing compensation rates for professional and technical services. The Government also issued instructions for forming tender committees that will assist each project manager in the procurement of goods and services (including consultants). But the authority for approving contracts (based on value) is extremely limited with almost all proposals having to be submitted to the department heads and to higher committees or even national committees. 14. In preparing the country profile, four projects were selected for detailed review, namely: Loan No. 1089: Inland Waterways; Loan No. 1092: Power XXI; Loan No. 1111: Bogor and Palembang Urban Development; and Loan No. 1428: North Java Road Improvement (Table 3).1 15. Advance action was approved by the Bank for the North Java Improvement Project. The Project was approved on 23 January 1996 but the consultants were not mobilized until about one and a half years later. Even with advance action, the TOR, shortlist, LOI, and other documents could not be prepared prior to loan approval. The Ministry of Finance requires that loans be effective before being included in the budget, therefore constraining the EA from reallocating funds for the preliminary activities. Further delays were incurred in giving concurrence to the documents because the Bank did not accept the changes in the bid bonds that were not in the agreed loan. There were also disagreements between the EA and the Bank in terms of wider geographical distribution of member countries. As submitted by the EA, all the prequalified firms were from Europe. Delays were also experienced during contract negotiation. It took about four months from the start of contract negotiation to signing. It could be attributed to the substitution of key personnel by the firm and some form of lobbying. One of the components under the loan is a preparatory study for the Sumatra Road Project. Until the time of the writing of this report, the consultants have yet to be engaged. The shortlist of consulting firms was submitted in August of 1996. The EA disagreed with the inclusion of this component and apparently did not consider it a priority, hence the delay.

Loan No. 1089-INO: Inland Waterways, for $45 million, approved on 18 July 1991; Loan No. 1092-INO: Power XXI, for $300 million, approved on 25 July 1991; Loan No. 1111-INO: Bogor and Palembang Urban Development, for $140 million, approved on 31 October 1991; and Loan No. 1428-INO: North Java Road Improvement, for $150 million, approved on 23 January 1996.

Table 3. Bank Loan Projects Studied, Indonesia Actual Dates of Selection Procedures Activities Loan No. 1089: Inland Waterways Project Loan No. 1092: Power XXi Project Loan No. 1111: Bogor and Palembang Urban Development Project 31 Oct 1991 22 May 1992 7 Jul1992 140 16.76 Directorate General of Human Settlements (Cipta Karya) W NR Jan 1993b 20 Dec 1993 28 Dec 1993 26 Mar 1994 10 May 1994 30 Jul1994 Sep 1994 1 Oct 1994 Loan No. 1428: North Java Road Improvement Project 23 Jan 1996 18 Mar 1996 21 May 1996 150 22.40 Directorate General of Highways (Bina Marga) W WO 24 Jun 1996 16 Jul1996 13 Aug 1996 Feb 1996 23 Jul1996 23 Sep 1996 21 Oct 1996 5 Dec 1996 27 Jan 1997 16 May 1997

Loan Approval Loan Signing Loan Effectiveness Loan Amount ($ million) Consultancy Services ($ million) Executing Agency Selection Procedures - Advance Action/Retroactive Financing - Project Administration Memorandum (PAM) - Submission of TOR, draft LOI, and Evaluation Criteria - Bank Approval of TOR, LOI - Submission of Shortlist - Bank Approval of Shortlist - Issuance of LOI - Submission of Proposals - Evaluation/Ranking - Bank Approval of Ranking - Contract Negotiation - Contract Signing

18 Jul1991 6 Sep 1991 4 Nov 1991 45 9.92 Directorate General of Land Communications (OGLC) W NR Jun 1992
a

25 Jul1991 2 Aug 1991 29 Oct 1991 300 14.40 Perusahaan Umuum Listrik Negara (PLN) WO NR 6 Mar 1991 3 May 1991 10 Apr 1991 3 May 1991 15 May 1991 15Jul1991 18 Nov 1991 27 Nov 1991 12 Feb 1992 8 Jun 1992

2 Sep 1992 Sep 1992 21 Sep 1992 21 Nov 1992 Feb 1993 Feb 1993 Aug 1993 - Mar 1994 30 Mar 1994

'"
CO

W
a

= with;

WO

= without;

NR

= not

required; TOR

= terms

of reference;

Lot ~ letter 01 invitation where the TOR was submitted by the EA only on

Excludes

the component

on a Study of Transportation Signing in December of consultants documents Profile

Sector Strategy,

10 April 1997

The EA plans contract
t

1997
for the follow-on project is in progress, with the Bank awaiting the EA's submission for the preparation 01 the Project Completion Report and benefit monitoring and evaluation is underway with work expected to start in December of consultants

Refers to the engagement of revised draft invitation

under Phase I The recruitment

for Bogar II. The recruitment

1997.

Source:

Indonesia

Country

-0 -0
CD

»
:::J 0.

-0 Dl CO
CD

'"
CO

29

Appendix 2, page 9

16. The Bogor and Palembang Urban Development Project was approved in October 1991 with advance action. However, the merits of the advance action were lost because the EA had to wait for loan signing and effectivity, which came seven and nine months later. It was the first Bank Project for urban development in the country involving various implementing agencies and several consultancy packages. The EA was unfamiliar with the Bank Guidelines and lacked the expertise and capacity to prepare the documents required by the Bank. The EA had the added problem in that the understanding about the Project had not been reached with potential beneficiaries and relending terms had not been determined during appraisal. The situation could have been fully assessed during appraisal and alternatives explored. The EA immediately submitted the TOR and other documents after loan effectiveness but it took the Bank more than one year to give approval because the files got lost during its own reorganization. The shortlisting was also delayed because the EA submitted four international firms and four domestic firms separately. The Bank had to convince the EA to determine association of the lead and associate firms, and to remove two domestic firms in the list. This disagreement meant numerous exchanges of correspondence, thus contributing to the delay. Given the numerous contracts, most of the consultants were mobilized ahead of the signing. It is worth noting that recently the Directorate General for Human Settlement, the EA for this Project, made it a policy (i) not to include in its project loans studies for future projects and (ii) to engage only domestic firms for simple engineering designs, and preparation of project completion reports and benefit monitoring and evaluation studies. 17. The State Electricity Enterprise, which is the EA for the Power XXI Project, is known to have a better project management system than other agencies in Indonesia. It has a specific division that handles all activities relating to the selection of consultants from the preparation of the TOR, evaluation criteria, and draft contract, to shortlisting, ranking of technical proposals, and signing of contracts. However, delays are still encountered because all documents have to be submitted to the Board of Directors. Furthermore, it is quite common that after negotiation, approval of the contract has to go through the EA's own ministry and the Ministry of Coordination (MOC). The MOC, the concerned Ministry, and the Board can change the ranking recommended by the EA. There was no delay in the 55 MW Geothermal component of the Project because the consultants who prepared the feasibility study were retained to prepare the bid documents. This component was funded by the Government and did not have to be submitted to the Bank for concurrence. There were delays in the other components because of disagreements between the MOC and the EA. The MOC was favoring domestic consultants, but the EA wanted to be assured of the quality of work and opted for international consulting firms.' The delays in consultant selection for this Project were experienced (i) during the evaluation and ranking because of the multilayered approvals involved in addition to the heavy workload of the division in charge of consultant selection; and (ii) during contract negotiations because the negotiating team had to consult with their home office on certain provisions of the BAPPENAS guidelines that were not acceptable to them. 18. Advance action was also approved by the Bank for the Inland Waterways Project. Again the advantages of using advance action were lost because the EA did not draft the TOR until after about nine months from loan approval. There were several exchanges of correspondence between the Bank and the EA on the draft LOI, draft contract, and evaluation criteria because such documents were prepared in very broad terms. The selection process
It should be noted that the EA also selects domestic consultants projects of the EA, the firms engaged have retired Government personnel. if they are qualified. In fact, in other employees from the EA itself as key

30

Appendix 2, page 10

was also prolonged because of the multilayered approval process in the Government. The shortlist, evaluation and ranking, and draft contract were submitted not only to the director general but to the minister as well. Furthermore, the Project scope had to be changed because of the required changes in the construction methods brought about by additional works. Consequently, the TOR had to be modified and approved by concerned authorities. Final decision on the change in scope was made after three Bank review missions. The final contract had to be approved also by the National Committee. The consultants for two components were finally mobilized in March 1994, after more than three years. Loan closing for the Project had to be extended from December 1996 to December 1998. One component of the loan, i.e., Study of Transportation Sector Strategy, is for future projects. As of the writing of this report, the TOR had just been approved by the Bank. This component comprises two phases, namely, feasibility study and design. The EA proceeded with the preparation of the TOR, LOI, and evaluation criteria for the design phase. The Bank did not concur with the EA, proposing instead the preparation of the feasibility study first by a different consultant and incorporating the railway option which, according to the EA, is already being looked into by the private sector. 19. Overall, the process of selection and engagement of consultants in Indonesia is beset with delays, despite the approval of advance action for most of the projects under review. Characteristically, each of the projects include consultancy services for future projects. Across the EAs, the delays were generally attributed to the multilayered approval system in the country, very limited delegation of authority to the EAs, frequent rotation/replacement of project managers, difficulty with the English language, and lobbying. For certain components that were successfully implemented, the quality of work was reportedly not always good. A structured system in the country for monitoring the quality of the performance of consultants would have to be set up. Interestingly, in Indonesia, there is a proliferation of Governmentowned consulting firms or firms staffed by retired/former Government officials, which are able to get the contracts for internationally funded projects. In general, the private sector consulting firms are usually used for small projects. 20. The 1997 country portfolio review mission (CPRM) in Indonesia indicated that delays in the recruitment of consultants were also due to inefficiencies coupled with some transparency problems. The CPRM then recommended that before loan negotiations, the EAs should be required to provide the Bank with (i) shortlist of consultants; (ii) draft LOI; and (iii) draft contracts. The CPRM also recommended that the consultants be recruited within six months of the issuance of the LOI. The World Bank has also made similar recommendations to the Government. D. Pakistan

21. The Federal Government, as well as the provincial governments, in Pakistan do not have any well-articulated policy and procedures for the engagement of consultants. The EAs generally draw from the provisions of the guidelines of the lending institutions. From time to time, the Government advises the EAs that at least 30 percent of the consultancy awards must be given to the domestic consulting firms. The appointment of consultants is controlled by the Planning and Development Departments (P&D). Every province has formed a consultants selection committee (CSC) that gives the necessary approvals at major stages of the selection process. The project directors in most if not all cases are not given the power for decisio-i making.

31

Appendix 2, page 11

22. The EAs in Pakistan, whether funding projects through local resources or through foreign loans and grants are required to prepare Planning Commission Forms I or II (PC-lor PC-II), which are submitted to higher authorities for approval. Projects involving consultancy services require concept clearance from the chief executive for foreign-funded projects. For consultancy services financed by internal funds, the concept clearance is obtained from the chief minister in each province and the Prime Minister of the Federal Government. For shortlisting, prequalification of consultants, selection/contract award of contracts costing PRs250,000 or less, administrative approval is obtained from the head of the department/secretary or chief executive of the autonomous bodies. For consultancy packages costing over PRs250,000, administrative approval is secured from the CSC headed by the secretary of the sponsoring department. The CSC includes all other concerned departments and the Ministry of Finance. Depending on the number of other concerned agencies, the total size of the CSC can be from eight to nine. The CSC has four permanent members, namely, the administrative secretary, secretary of Finance, member of the Planning and Development Board, and the head of the sponsoring department/agency. Since the quorum of five members is fixed, it appears that the four permanent members are the ones who actually exercise the power to choose the consultants. 23. Three projects were selected for detailed review in Pakistan, i.e., Loan No. 1297: Third Punjab On-farm Water Management; Loan No. 1179: NWFP Barani Area Development; and Loan No. 1349: Punjab Rural Water Supply and Sanitation (Sector) (Table 4).1 These three projects showed varying duration for each of the stages of the selection process. 24. For the Third Punjab On-farm Water Management Project, preparation and approval of the TOR alone took about five months with the invitation for proposals being advertised two years after loan signing. Shortlisting alone took almost seven months because the Government wanted to continue with the previous project preparatory technical assistance (PPTA) consultants while the Bank thought otherwise. The evaluation of proposals, including Bank approval, took about four months, while contract negotiations took about six months. The delays in the selection/engagement of consultants resulted in delays in the implementation of the pilot scheme for on-farm drainage, watercourse construction supervision, and the establishment of the benefit monitoring and evaluation system for the Project. The delay was largely because of the lack of agreement between the Bank and the EA on engaging specific consultants for the feasibility study of the Project. This disagreement delayed the commencement of the prequalification process of consultants during the shortlisting stage. However, a review of the Project's physical progress indicated about 70 percent completion despite such delays which, given the EA's experience in implementing several projects funded not only by the Bank, but by the World Bank and the Overseas Economic Cooperation Fund as well, would most likely result in the Project meeting its original completion date. It seems therefore that the extent of the need for consultancy services was not properly assessed at the planning/feasibility stage.

Loan No. 1297-PAK(SF): Third Punjab On-farm Water Management, for $62.16 million, approved on 8 March 1994; Loan No. 1179-PAK(SF): NWFP Barani Area Water Development, for $32.8 million, approved on 24 September 1992; and Loan No. 1349-PAK(SF): Punjab Rural Water Supply and Sanitation (Sector), for $46 million, approved on 31 January 1995.

Table 4. Bank Loan Projects Actual Activities Dates of Selection

Studied,

Pakistan

Procedures Loan No. 1297(SF): Third Punjab On-Farm Management Water Project Loan No. 1349(SF): Punjab Rural Water Supply tation (Sector) and SaniProject

Loan No. 1179(SF): Area Development

NWFP Barani Project

Loan Approval Loan Signing Loan Effectiveness Loan Amount ($ million) Consultancy Services ($ million) Executing Agency

24 Sep 1992 9 Dec 1992 25 Nov 1993 32.80 1.32 _Punjab Planning & Devt Dep't. Agricultural Devt Bank of Pakistan

8 Mar 1994 17 May 1994 24 Aug 1994 62.16 1.46 Punjab Planning & Devt Department

31 Jan 1995 12 May 1995 23 Aug 1995 46.00 3.11 Public Health Engineering Department (Punjab)

Selection Procedures Advance Action/Retroactive Financing Project Administration Memorandum (PAM) Submission of TOR, draft LOI, and Evaluation Criteria Bank Approval of TOR, LOI Submission of Shortlist Bank Approval of Shortlist Issuance of LOI Submission of Proposals Evaluation/Ranking Bank Approval of Ranking Contract Negotiation Contract Signing

W
NR

WO W
10 Oct 1994 29 Nov 1994 11 Nov 1995 13 Feb 1996 b 19 Jun 1996 10 Aug 1996 24 Oct 1996 2 Dec 1996 2 Jun 1997 5 Jul1997
a

w
WO
31 Mar 1996 22 Apr 1996 30 Jul1996 15 Aug 1996 17 Sep 1996 7 Nov 1996 14 Dec 1996 7 Jan 1997 12 Feb 1997 12 Feb 1997

31 May 1993 14 Jul 1993 31 Jul1993 13 Aug 1993 17 Jul 1994 1 Aug 1994 15 Aug 1994 18Jan1995c

W
a

= with; WO = without;

NR

= not required; TOR = terms

of reference; LOI

= letter of invitation.

Refers to the TOR only. The draft LOI. evaluation criteria, and proforma contract were submitted on 28 March 1996 with final approval from the Bank on 11 June 1996. In between were numerous clarifications and exchange of correspondence between the EA and the Bank. The Bank had to send its representative to Lahore to discuss its disagreement with the EA on the composition of the shortlisted firms, which should represent member countries of the Bank. The BME consultants were selected and fielded in May 1995 while the road consultants were appointed on 12 October 1995.

'U 'U CD ::J

»
a.

I\)

b

c

"0

Source: Pakistan Country Profile

~

CD

_..
I\)

33

Appendix 2, page 13

25. For the North West Frontier Province (NWFP) Barani Area Development Project, the longest delay in the engagement of consultants was in the evaluation of the technical proposal. It took about eight months (December 1993-17 July 1994) from the time the proposals were first reviewed until the ranking was approved by the Borrower, mainly because (i) the EA waited for the loan effectivity, which was in November 1993, more than one year after loan approval in September 1992; (ii) the evaluation was entrusted by the CSC to a subcommittee headed by the director general for the Special Development Unit of the P&D, which took four months to decide. When presented to the provincial CSC, another four months were taken mainly because a reevaluation was ordered that in the end actually did not change the ranking. Similarly, contract negotiations took a little more than five months. The other consultancy components also took a long time with two years of delay for the appointment of benefit monitoring and evaluation consultants, and three years after the date of the advertisement for the road consultants who were selected by the Communication and Works Department. The potential advantages of advance action following the signing of the loan in December 1992 and shortlisting of consultants in January 1993 were not achieved at all. The substantial delay in the engagement of consultants must have contributed to the lower than expected rates of growth in the benefit streams for the Project. The progress of the rural roads component was very slow largely because of the delay in the engagement of the domestic engineering consultants for design and supervision of the rural roads. 26. Under the Punjab Rural Water Supply Project, the engagement of consultants was likewise delayed by about two years from loan approval despite the adoption of advance action and retroactive financing. The delay was largely attributable to the provincial government's bureaucratic procedures. The TOR for the consulting package one had to be submitted to the P&D even if the PC-I had already been approved by the Executive Committee of the National Economic Council even prior to the loan signing. It took P&D five months to approve the TOR. The shortlisting took a while as well with the Bank finally providing the EA with a shortlist in December 1995. With pressure from the Bank, the provincial CSC approved the appointment of the consultant after one month. For consulting package two, the EA took one year to complete the draft TOR for approval by the P&D, which took another five months. Only then was an advertisement inviting expression of interest from consulting firms published. After a month, about 18 firms were included in the longlist. A departmental subcommittee was created to evaluate the firms and come up with a shortlist that was approved by the provincial CSC in one week. Technical and financial proposals were received from the shortlisted firms after 45 days. The CSC formed another subcommittee to look at the proposals, and it took these two groups five weeks to evaluate the proposals. Upon approval by the Bank, the Punjab CSC again created a subcommittee to start contract negotiations that took less than two weeks. Three weeks later, the draft contract was approved by both the Bank and the Punjab CSC; on the same day, the EA executed the contract. The lack of a full-time project director (the incumbent was concurrently serving as technical adviser to the secretary of P&D) must have contributed to the inability of the EA to keep to the original schedules. 27. Generally, the selection and engagement of consultants in Pakistan are unusually delayed because of (i) several layers in the bureaucracy where approvals are sought; (ii) lack of full-time project directors; (iii) lack of financial and administrative authority for the EA to approve the selection of consultants; and (iv) constant rotation of personnel. Interviews with various officials both in the field and the Central Government also implied the presence of intense political lobbying at all the stages of the selection process.

34

Appendix 2, page 14

E.

Philippines

28. The Philippines has a well-articulated set of policies and procedures governing the procurement of consultants as contained in its Guidelines on the Procurement of Consulting Services for Government Projects. The concerned department secretaries and/or governing boards in the case of Government-owned and controlled corporations (GOCC) are empowered to approve all pure consultancy contracts of the agency, irrespective of the amount and funding source. In the presence of a private sector observer, the five-person Prequalification, Evaluation and Awards Committee (PEAC) of the department concerned or its equivalent in the GOCC are authorized to prequalify, select, and recommend to the approving authority any award of contracts. A representative from the Project Implementation Unit (PIU), but not necessarily the project director, is always designated a PEAC voting member. In practice, a technical working group, whose members are designated by each PEAC member, is organized to assist the PEAC in performing its responsibilities. In general, the domestic guidelines of the Philippines is consistent with the Bank's Guidelines on the Use of Consultants. The Government likewise issued Administrative Order No. 129 in 1994 prescribing standard processing times for bidding and award activities to be adopted by concerned Government officials. 29. Five ongoing projects were reviewed in detail to determine at what particular stage delays occurred, namely, Loan No. 914: Fourteenth Power (Sector); Loan No. 1288: Power Transmission; Loan No. 1322: Fourteenth Road Improvement (Supplementary); Loan No. 1332: Rural Infrastructure Development; and Loan No. 1333: Airport Development (Table
5).1

30. The longlisting of consultants under the Fourteenth Power Sector Project started soon after loan effectivity. However, the shortlisting of firms took longer because the EA misinterpreted the Bank's policy on balanced geographical distribution to mean at most two firms from the member country chosen. At the same time, the EA had to select nine consulting firms resulting in delays ranging from 6 to 18 months for the nine consultancy services. It would have minimized the difficulties experienced by the EA if the recruitment of consultants for the feasibility and other studies, which were for the EA's future expansion not the curren: Project, were spread toward the later part of the implementation. Delays were compounded because prior to the Bank's concurrence, the approval of consulting contracts had to be forwarded from the PIU to the president of the EA and to the Board for final approval. The EA's organizational setup recently added another layer to the approval process with the establishment of the Management Executive Committee, which is between the president and the Board. The Power Transmission Project under the same EA is experiencing delay as well. The loan became effective in September 1994, but the consultants have not been engaged as of the preparation of this Report. The consulting service in this Project was required only for the Reservoir Management and Catchment Area Rehabilitation Study for Luzon, which the EA believes is not critical to the Project. The objective of the Project is to effectively convey the power from the 700MW Pagbilao Coal-Fired Plant. But the Bank's assessment is that the

Loan No. 914-PHI: Fourteenth Power (Sector), for $120 million, approved on 27 October 1988; Loan No. 1288-PHI: Power Transmission, for $164 million, approved on 14 December 1993; Loan No. 1322-PHI: Fourteenth Road Improvement (Supplementary), for $23.5 million, approved on 29 September 1994; Loan No. 1332-PHI(SF): Rurallnfrasfrucfure Development, for $17.5 million, approved on 10 November 1994; and Loan No. 1333-PHI: Airport Development, for $41 million, approved on 24 November 1994.

Table 5. Bank Loan Projects Studied, Philippines Actual Dates of Selection Procedures ActMties Loan No. 914: Fourteenth Power (Sector) Project 27 Oct 1988 4 Nov 1988 25 Jan 1989 120 9.3 National Power Corporation Loan No. 1288: Power Transmission Project 14 Dec 1993 20 Dec 1993 6 Sep 1994 164 1 National Power Corporation Loan No. 1322: Fourth Road Improvement (Supplementary) Loan No. 1332: Rural lnfrastructure Development Project 10 Nov 1994 20 Jan 1995 19 May 1995 17.5 2.34 Department of Agriculture Loan No. 1333: Airport Development Project 24 Nov 1994 20 Jan 1995 28 Apr 1995 41 7.4 Dept of Transport & Comm , Air Transportation Office

Loan Approval Loan Signing Loan Effectivene~s Loan Amount ($ million) Consultancy Services ($ million) Executing Agency

29 Sep 1994 20 Jan 1995 27 Apr 1995 23.5 1.7 Department of Public Works and Highways

Selection Procedures Advance Action Project Administration Memorandum (PAM) Submission of TOR, draft LOI, and Evaluation Criteria Bank Approval of TOR, LOI Submission of Shortlist Bank Approval of Shortlist Issuance of LOI Submission of Proposals Evaluation/Ranking Bank Approval of Ranking Contract Negotiation Contract Signing

WO NR

WO NR 10 Jul 1997

W

W W 1 Jul 1995

W WO 17 Jun 1994' 1 Jul1994

1 Jan 1989 1 Ju/1995b 2 Jan 1900 15 Sep 1995 15 Nov 1995 19 Feb 1996 19 Mar 1996 12 Aug 1996 30 Aug 1996 17 Jun 1994 1 Ju/1994 23 Sep 1994 25 Nov 1994 8 Feb 1995 11 Feb 1995 28 Apr 1995 30 Jun 1995

29 Mar 15 Jun 22 Jan 14 Feb

1989 1989 1990 1990

5 Mar 1990

July 22 Oct 26 Nov 31 Dec 14 Jan 25 Feb

1997 1997 (P) 1997 (P) 1997 (P) 1998 (P) 1998 (P)

W 01

W:; with; WO :::: ithout; NR :; not required: P = planned: TOR = terms of reference; LOI = letter of invitation. w
a

The loan was approved 10 finance the foreign exchange requirement of the cost overruns. including the cost of extended consulting services. In the original loan (PHI·801), the selection of consuHants was delayed by 14 months because of the lengthy and multilayered approval procedure within the EA and the protest filed by one of the shorttisted firms.

C

\f!Jhilethe Bank was sUDreviewing the shortlisted firms, most of the consultants backed out because of the telTOIist incident in the project area. The process of recruitment had to be repeated. Refers to the detailed engineering and construction supervision consultancy services only. The EA has yet to engage an Intemational Civil Aviation Organization expert for one component of the project.

C

Source: PhWppines Country Profile

36

Appendix 2, page 16

cheapest resource power in Luzon is underutilized and wanted to have the study prepared as part of the Project. Almost three years after loan effectivity, the shortlisting and preparation of the LOI have been submitted by the EA for concurrence by the Bank. Invitations for proposals were issued in July 1997. Evaluation of proposals is expected to commence on 23 October 1997. Even though not directly attributable, the frequent replacement of project directors, the two projects having four and five project directors, respectively, also must have contributed to the slow approval process by the EA. 31. The supplementary loan (PHI-1322) for the Fourth Road Improvement Project only involved the extension of services of the ongoing coordinating consultants. Information gathered from the EA showed, however, that the recruitment of the construction supervision consultant for the road packages under the original loan (Loan No. 801: Fourth Road Improvement) was delayed by about one year. In 1986, the change in Government brought about a new policy that disallowed consultants to undertake construction supervision of projects they have designed. While the recruitment process prior to the change in Government was proceeding rather on time, the new policy was unfavorable to the first-ranked shortlisted domestic consulting firm. The firm then filed a formal protest that necessitated the reevaluation of the technical proposals. The overcautiousness and multilayered approvals of the EA in making the final decision also contributed to the delay. 32. Advance action was approved by the Bank for the Rural Infrastructure Development Project which meant that the LOis, shortlisting, and other documents could be prepared prior to loan negotiations. However, the EA did not utilize the advance action facilities because of lack of funds. The tight Government control in the realignment of funds has prevented the EA to advance funds from their available sources.' It therefore took the EA about 16 months to appoint the consultants from the time of loan effectiveness and about 21 months from loan signing. To date, only the international engineering team and the domestic benefit monitoring and evaluation specialist have been appointed. The first-ranked international agricultural training specialist did not show up during contract negotiations, and was planned to be replaced with a domestic expert because of the prolonged delay. The delay in the engagement of consultants was attributed to the local terrorism incident that resulted in the withdrawal of the shortlisted consultants and the consequent restarting of the recruitment process. Again the first- and second-ranked consultants both backed out because of the incident, and the EA's requirement of a staggered timetable of service engagement. Prior to this, the issuance of the LOis was also delayed because of the planned simultaneous selection of six consultants. The evaluation, ranking, and approval of the consultants by the PEAC was also delayed because of the retirement of the original project director and the unfamiliarity of the new project director with the Bank's procedures. 33. Advance action was also approved by the Bank for the Airport Development Project. The required documents such as the shortlist, invitation documents, evaluation criteria, and draft contract for the detailed design/construction supervision consultancy services were submitted by the EA for Bank concurrence five months before loan approval. However, the EA sent the invitations to the shortlisted firms only after receiving assurance from the Bank that advance action was already effective. Again, the EA did not want to allocate funds for the consultant recruitment process until after assurance of a loan approval. Proposals were received by the EA around the time the loan was approved. In the absence of a PAM (reason for not preparing the document could not be obtained), the two months it took to evaluate the
This is true for other E.A.sin the country.

37

Appendix 2, page 17

technical proposal was well within the Government's guidelines. Contract negotiations with the first-ranked firm was unnecessarily lengthened because of the numerous replacement of key personnel by the consulting firm. Such replacement required several reviews by the EA, as well as assessment and concurrence by the Bank. The consultants were fielded in July 1995 with a seven-month delay when compared with the original schedule in the appraisal report. However, ",the EA has yet to select the International Civil Aviation Organization (ICAO) expert consultant. The Bank had to adjust the schedule given the delays incurred by the EA in the engagement of consultancy services. The reasons given for the delays in the recruitment of consultant for these components were (i) replacement of the project directors twice with the current one serving on a part-time basis only, thus necessitating repetitive reviews and approvals of required documents; and (ii) the EA was not convinced with the need for the ICAO expert, as the experts involved in one of their ongoing TAs were also from ICAO. 34. The delays in the engagement of consultants for the case projects in the Philippines can be attributed to the nonobservance of the ideal interphasing of the preliminary selection activities with the loan processing cycle as envisioned in the PAL There are several reasons why in actual practice the Bank's prescribed schedule of consultant selection activities is not observed. In cases where advance action is approved, for example, the Government agencies, even if they want to start early, lack the funds to do so. It is an unwritten norm among Government agencies not to invest financial and human resources on undertakings with uncertain financial support. This can be attributed to the difficulty of having the requested agency budget approved by the Philippine Congress, especially if it includes such allocations for upfront expenditures for the selection of consultants for projects not yet funded. The EAs cannot Just realign their budget to accommodate the expenses for mobilizing the PIUs, advertisement fees, as well as other items required in the early recruitment process of advance action. Interviews with several officials both from the Government and the EAs revealed that the Government prefers funding of consultancy services through grants, or the availability of a special funding facility. Another reason for the delays in the consultants' engagement process is the lack of synchronization of the Government's approval process and the Bank's loan processing. There are instances where the loan was negotiated prior to project approval of the Government, which resulted in a delay in project implementation. Consequently, all the selection activities, except the finalization of the TOR in some cases, are postponed until the proposed loan is declared effective.

F.

Viet Nam

35. . Until recently, Viet Nam did not have a defined system for selection of consultants. In July 1996, the Government issued Decree 43/CP prescribing rules for the recruitment of consultants. On 25 February 1997, the Inter-Ministerial Circular No. 02/TTLB was issued by the Government. It provided guidelines for the implementation of the 1996 Decree by the Ministries of Planning and Investment, and Construction and Trade. It prescribed basically a two-envelope system with guidelines for technical and financial evaluation. While the EAs have the system of internal committees for processing the recruitment of consultants, their financial and administrative authority is highly limited. Proposals for shortlisting, TOR, LOI, evaluation criteria, and draft contracts have to be approved at higher levels in the ministries. Above a certain value as determined by the Government, all contracts must be submitted to the Prime Minister. When proposals reach the Ministry, ad hoc committees are usually set up to examine the EAs proposals.

38

Appendix 2, page 18

36. In preparing the country profile, five Bank-funded projects were selected for detailed review, namely, Loan No. 1487: Second Road Improvement; Loan No. 1259: Irrigation and Flood Protection; Loan No. 1358: Power Distribution Rehabilitation; Loan No. 1273: Ho Chi Minh City Water Supply and Sanitation Rehabilitation; and Loan No. 1361: Provincial Towns Water Supply and Sanitation (Table 6).1 37. For the Second Road Improvement Project, advance action was taken with the TOR, longlist and shortlist being prepared early on. In fact, the LOI was sent to the six shortlisted consulting firms about six months before loan approval. The technical proposals were received three months later with one month delay. Following the decentralization policy of the Government, the EA was authorized to evaluate the proposals. This stage, however, took eight months because the EA felt that they could not proceed until after the loan was signed. The other stages proceeded with the consultants expected to be in the field in October 1997. For the rural road component, the TOR and shortlist are still being prepared for approval by the Bank. 38. For the Irrigation and Flood Protection Project, the delay totaled one year compared with the planned schedule in the loan agreement. The LOI was issued three months after the Bank approved the draft LOL Contract negotiation to contract signing took another three months because of major deviations from the Bank-approved TOR. The Ministry of Water Resources decided to cancel the agriculture and socioeconomic study contrary to what the Bank had approved. This resulted in substitution and replacement of personnel in the original team of the firm, which further prolonged the approval process. In the Power Distribution Rehabilitation Project, advance action was also taken with the TOR, shortlisting, and LOI being issued prior to loan approval. Preparation and submission of technical proposals were within the normal cycle of 60 days. However, the evaluation of the proposal took seven months because of the Project Management Board's unfamiliarity with the selection procedures. The team leader of the first-ranked firm was from a nonmember country of the Bank (Luxembourg). 39. Advance action was also approved for the Ho Chi Minh City Water Supply and Sanitation Rehabilitation Project. While the Project was approved in November 1993, the loan was not made effective until April 1995 because of certain conditionalities, which were not met by the Borrower. The Bank followed up the progress of the recruitment process but the EA had to wait for authorization from the Government to proceed, which was received in July 1994. The process was further delayed because it took more than 16 months for the loan to become effective. Prior to loan effectiveness, however, the Project Management Unit (PMU) had prepared the TOR, shortlist of consultants, evaluation criteria and LOL Yet, the LOI could not be sent out because the full delegation of authority was given to the PMU only in June 1995. The evaluation and ranking of consultants took another two months because two of the consulting firms breached the procedures requiring several reviews and exchange of correspondence between the Bank and the EA. The contract negotiations also took more than two rionms because the consultants needed time to apply for entry visa, and there were disagreements in drafting the contracts which required numerous consultations with the Bank.
Loan No. 1487-VIE(SF): Second Road Improvement, for $120 million, approved on 21 November 1996; Loan No. 1259-VIE(SF): Irrigation and Flood Protection Rehabilitation, for $76.5 million, approved on 26 October 1993; Loan No. 1358-VIE(SF): Power Distribution RehabHitation, for $79.98 million, approved on 8 June 1995; Loan No. 1273-VIE(SF): Ho Chi Minh City Water Supply and Sanitation Rehabilitation, for $65 million, approved on 29 November 1993; and Loan No. 1361-VIE(SF): Provincial Towns Water Supply and Sanitation, for $66 million, approved on 17 August 1995.

Table 6, Bank Loan Projects Actual Activities Loan No, 1259(SF): and Flood Rehabilitation Loan Approval Loan Signing Loan Effectiveness Loan Amount ($ million) Consultancy Services ($ million) Executing Agency Irrigation Project Dates of Selection Ho Chi Minh and SaniProject

Studied,

Viet Nam

Procedures Loan No. 1358(SF): Distribution Project 8 Jun 1995 16 Jun 1995 22 Sep 1995 79.98 2.21 Power Companies No.1 Power Loan No. 1361(SF): Towns Sanitation Provincial and Loan No. 1487(SF): Road Improvement Second Project

Loan No. 1273(SF): City Water Supply tation Rehabilitation

Protection

Rehabilitation

Water Supply Project

26 Oct 1993 30 Oct 1993 24 Aug 1994 76.5 2.79 Ministry of Water Resources

29 Nov 1993 28 Sep 1994 10Apr 1995 65 6.44 HCMC People's Committee Bank for Investment and Development of Vietnam

17 Aug 1995 15Sep 1995 22 Dec 1995 66 4.37 Ministry of Construction

21 Nov 1996 25 Mar 1997 3 Jul1997 120 6.31 Project Management Unit 1

Selection Procedures - Advance Action Project Administration

Memorandum

(PAM)

W W Jan-Feb 1994

WO NR prior to loan effectiveness prior to loan effectiveness prior to loan effectiveness prior to loan effectiveness 1 Jun 1995 1 Aug 1995 12 Oct 1995 20 Oct 1995 14 Feb 1996 16 Feb 1996

W WO 1 Mar 1995

WO W 20 Apr 1996 3 May 1996 20 Apr 1996 3 May 1996 5 May 1996 10 Jul1996 20 Aug 1996 30 Aug 1996 14 Dec 1996' 22 Jan 1997
b

W W Prior to Loan Approval

Submission of TOR, draft LOI, and Evaluation Criteria Bank Approval of TOR, LOI Submission of Shortlist

1 Jan 1994 16 Jun 1994 5 Sep 1994 5 Dec 1994 27 Mar 1995 1 Jun 1995

- Bank Approval of Shortlist - Issuance of LOI
Submission of Proposals - Evaluation/Ranking Bank Approval of Ranking

-

1 May 1995 1 Jul1995 1 Feb 1996 1 Feb 1996 1 Mar 1996 1 Mar 1996

15 May 15Aug 24 Apr 14 May

1996 1996 1997 1997

(,.)

<0

Contract Negotiation Contract Signing

9 Jun 1997

w = with;
a
t,

WO

= mhout;

NR

= not required; TOR = terms of reference; LOI = leiter of invitation; HCMC = Ho Chi Minh City.
for the recruitment of consultants for the Rural Road component. No action has occurred to date on the consulting services for the institutional strengthening had to be conducted to reduce the consulting component. and draft contract. on 10 Sep 1996 and contract signing was done on 30 Sep 1996. However, contract renegotiation

The Bank just received the draft invitation documents Included shortlist of consultants Contract negotiation was completed

c

services cost to less than the ceiling of $5 million set Source: Vietnam Country Profile.

by the Government.

<0

.....

40

Appendix 2, page 20

The approval of the Prime Minister through the National Procurement Appraisal Council took almost two months. The consultants were not fielded soon after because renegotiations had to be conducted. The first-ranked firm expressed disagreement on the modifications of the financial terms in the amended contracts. Once the contract was renegotiated, the project implementation was beset with problems on several personnel replacement and substitution by the consulting firm. 40. The process of engaging consultants for the Provincial Towns Water Supply and Sanitation Project covered by the review also took about 12 months from the preparation of documents to the commencement of services. The Ministry of Construction is the EA via a Central Project Management Unit (CPMU) within the Management Board for Water Supply and Sanitation Development Projects. The CPMU was established prior to loan effectiveness. In March 1996, the EA received letters of interest from 20 firms. After about a month, the EA submitted to the Bank the (i) shortlist of consulting firms, (ii) evaluation criteria, (iii) draft LOI, and (iv) draft contract. In two weeks, the Bank approved the shortlist, two days after which the EA issued the LOI giving the firms two months to prepare and submit their proposals. It took the EA one month to evaluate the proposals, four days for the Ministry's CSC to deliberate and select the firm, and ten days for both the Bank and the Government to approve the evaluation report. On 30 September, contract signing was scheduled but a contract renegotiation had to be held about three weeks later because of a reduction in consulting services cost. A second renegotiation had to be held to reduce the cost further to less than the $5 million ceiling set by the Government. Final contract signing proceeded in January 1997 and commencement of services another month later. The consulting firm has performed quite satisfactorily and coordinates well with the EA. 41. The review of the five ongoing projects in Viet Nam revealed that the EA and PMU officials and staff, and CSC members are still largely unfamiliar with international bidding practices and with the Bank guidelines and procedures for the selection of consultants, particularly in the evaluation of technical proposals. These staff are further constrained by their difficulty in reading and understanding the proposals, which are written in English. Some of the EAs (and the World Bank recently) took it upon themselves to have certain documents and guidelines translated into Vietnamese. It should be noted that delays in the engagement of consultants in Viet Nam are concentrated in the evaluation of technical proposals up to the contract negotiation stages. Further, the lack of delegation of power to the EAs, and the bureaucratic formalities at different levels of Government authorities, contribute to the delays in consultant engagement at various stages. 42. While the Bank provides EAs with long list of consultants, and even the shortlist whenever requested, the country's limited access to information on international consulting firms results in some agencies favoring certain firms that are active in marketing their services. It was implied that some consulting firms invite the EA and PMU key officials to their head offices and ongoing projects in other countries. It was also indicated that to have their localities included in the project areas of the Bank projects, some provincial officers had to lobby line ministries in various ways.

41

Appendix 3, page 1

CHECKLIST OF ACTIONS TO BE TAKEN BY THE MISSION LEADER DURING THE APPRAISAL MISSION AND LOAN NEGOTIATIONS WITH REGARD TO THE RECRUITMENT OF CONSULTANTS A. Appraisal Missions

1. The appraisal missions will furnish the borrower with the following documents (sets of these documents are available with the Consulting Services Division):
(i)

time schedule form for the recruitment of consultants; longlist of consultants, if requested by the borrower; sample of draft invitation document to be sent to the shortlisted consultants, including a letter of invitation.' background information, and terms of reference; sample form evaluation of consultants' proposals (including narrative evaluation criteria); sample consultants contract (firms and individuals); Guidelines on the Use of Consultants by the ADB and Its Borrowers; and Handbook for Users of Consulting Services.

(ii) (iii)

(iv)

(v)

(vi) (vii)

2. The procedures for the recruitment of consultants on the basis of the Bank's guidelines and practices will be explained and clarified to the borrower. 3. The borrower will be assisted in the preparation of time schedule for selection, and the invitation documents. 4. The mission will discuss anticipated problems and to what extent additional assistance from the Bank will be required in the finalization of the invitation documents, evaluation of proposals, contract negotiations, etc. 8. Loan Negotiations

5. The following documents should be finalized and submitted by the borrower prior to or at loan negotiations approved by the Bank on or before the project is approved by the Board: (i) (ii) (iii) time schedule for the recruitment of consultants; shortlist of consultants; invitation documents including the letter of invitation, background and terms of reference. information,

Two types of invitation letter, based on one-envelope

and two-envelope

systems, are available with COCS.

42

Appendix 3, page 2

(iv) (v)

evaluation criteria, including narrative evaluation criteria; and draft consultant's contract.

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