Understanding ADB's new procurement policy

In 2016, the Asian Development Bank carried out internal and external consultations with a range of stakeholders, to address the question: What needs to be fixed in the bank’s procurement system? Shorter procurement cycle, focus on quality and improve delivery models and delivery systems, was the response they received. Building on this feedback and the bank’s 10-point procurement action plan launched in 2014, ADB came out with a new procurement framework approved in April by its board of directors, to be applied in all new projects with concept notes approved from July 1 onwards. More flexible procurement arrangements The framework contains provisions on how the bank could potentially reduce the time it takes to get projects up and running. These include adopting more dynamic procurement arrangements, such as shifting preassessment and review responsibilities to countries the bank deems able to handle low-risk contracts, and considering the adoption of different entities’ procurement systems. On low-risk contracts, countries will be given considerable workload or “degree of responsibility” to check on a contract’s requirements and follow ADB’s procurement guidelines, including ensuring ADB’s procurement principles are being met, that there’s no corruption or conflict of interest involved, that bidders are given equal opportunities, and market assessments were properly carried out. ADB will still be involved in post-reviews, and countries can still ask ADB to do the preassessments for them “when in doubt,” said Ramesh Subramaniam, director general for ADB’s Operations Services and Financial Management Department. But if countries agree on the approach, it is expected to save both them and ADB time and effort, allowing the bank to concentrate on higher value and higher risk contracts during the preparatory stage of the project. The bank receives an estimated 8,000 contracts every year, many of them quite small, said Subramaniam. “There’s no point in [countries] doing the work, us reviewing each and everything, giving the approval, them check[ing] the approval,” he said. “It’s the back and forth [that’s] accumulating time.” The other procurement arrangement meanwhile looks at opportunities for ADB to permit the use of country or partner agency’s procurement systems, instead of its own. The bank has started to do this to some extent. In April for example, the bank signed a $175 million loan agreement with the government of India for an energy transmission system, to be implemented by Power Grid Corporation of India Limited, a state-owned electric utilities company. For this project, ADB has agreed to use POWERGRID’s procurement system after the latter met all of ADB’s core procurement principles and its system contained little gaps with ADB’s standard bidding procedures. ADB also plans to use more e-procurement in its transactions, which would allow for quicker and more transparent transactions and that would leave little paper trail for confidential documents. Several countries in the region have adopted e-procurement, according to Subramaniam. Some use it for routine item purchases such as office supplies; others make use of e-procurement for all of their bidding transactions. Similar to the adoption of country or agency systems, however, any e-procurement system is also subject to ADB accreditation. “The biggest concern there is: Is the system sound enough to accept bids from all possible bidders without any glitches [or] problems? Second is: Is the system integrity good enough? Because you don’t want hackers going into the system and getting confidential data. Third, if they have any problems, do they have good mechanisms for data recovery, or responding to complaints from bidders? Will they be able to trace back whatever happened in the system and so on?” Subramaniam said. The new policy would also allow borrowers to make use of only one procurement arrangement in a multifinanced project. For example, in an undersea telecommunications project co-financed by ADB and the World Bank, ADB in one case allowed the use of the World Bank’s procurement system. In a road project in East Timor, ADB allowed the borrower to use the Japan International Cooperation Agency’s procurement system, said Subramaniam. How the ADB decides on which donor procurement arrangement to use will vary per project. “It’s not necessarily [driven by] money,” Subramaniam said. “We may have been involved in that sector before [or] our previous country strategy business plan might have supported a transport project in that country.” In which case, ADB’s procurement system could best apply. But in cases where the World Bank, for example, has a better understanding of a country’s or agency’s systems and arrangements, then it might be best for ADB to agree to use the World Bank’s procurement system instead. Early engagement The bank also plans to do more market assessments and invest more time and effort in the preparation stage, meaning more feasibility and design work done ahead of time. This, Subramaniam said, will hopefully allow for faster transactions and cut the time it takes for back and forth during contract processing. The change would also allow ADB projects to potentially adopt higher level technology solutions, allowing borrowers to be aware of what’s available out there in the early stages of the project cycle. “For any project, any procurement you do, if you have early-stage engagement with the private sector [and] solutions providers, it is much better,” Subramaniam said. This, he said, allows borrowers to be aware of what different types of solutions are out there, and what are their different features and benefits. Having these solutions on hand does not guarantee the borrower will adopt them, especially as affordability will always be part of the equation. But that’s also why ADB is putting emphasis on quality and value for money in the new framework. Both are the newest additions to the bank’s core procurement principles, which include economy, efficiency, fairness and transparency. ADB hopes the addition of the two core procurement principles will allow borrowers to consider costs in relation to a project’s life cycle. “For example you have the [light railway transit] line. You are looking at this as a 30-year, sometimes longer, investment. So if we put it in a life cycle framework, value for money will enable you to assess the costs and benefits over the life cycle,” Subramaniam said. “These are all huge projects costing billions of dollars in taxpayers’ money. So clearly countries want to make sure that they take into account the benefits over the life of the project.” Looking at a project’s life cycle also allows borrowers to place emphasis on quality on civil works, tools and equipment. When looking at energy transmissions, for example, without placing quality standards on the power transmission equipment, countries are likely to suffer significant transmission losses. 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