Documentof The World Bank FOR OFFICIAL USE ONLY ReportNo: T7699-AF TECHNICAL ANNEX FOR A PROPOSEDGRANT OF SDR 13.5 MILLION (US$20.4 MILLIONEQUIVALENT) TO THE ISLAMIC REPUBLIC OF AFGHANISTAN FOR A CIVIL SERVICE REFORM PROJECT April 30,2007 PovertyReductionand EconomicManagementUnit SouthAsia Region This document has a restricted distribution and may be usedby recipients only inthe performance o f their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCYEQUIVALENT April 23,2007 Currency Unit=Afghani U S $ I.OO= AFN 50.4 GOVERNMENTFISCALYEAR March 21-March 20 ABBREVIATIONSAND ACRONYMS AB AppointmentBoard IMF InternationalMonetaryFund ADB AsianDevelopmentBank ISN InterimStrategyNote AEP AfghanExpatriateProgram IT InformationTechnology AFMIS AfghanistanFinancialManagementInformation ICB InternationalCompetitiveBidding System ARDS AfghanistanReconstructionDevelopment MAC Ministerial Advisory Committee Services ARS Administrative ReformSecretariat M&E Monitoring andEvaluation ARTF Afghanistan ReconstructionTrust Fund MCP ManagementCapacity Program CAO ControlandAudit Ofice MoE MinistryofEconomy CSR Civil ServiceReform MoF Ministry of Finance CQ Consultant Qualifications NCB NationalCompetitiveBidding CQS csc Consultant QualificationsSelection NDF NationalDevelopmentFramework Civil ServiceCommission OECD Organizationfor Economic Co-operation CSL Civil ServiceLaw PACB Public AdministrationCapacity Building Project CSMD Civil ServiceManagement PAR PublicAdministrationReform Department DA DesignatedAccount PCD ProgramCoordinationDepartment DAB DaAfghanistan Bank P&G Pay and Grading DAC DevelopmentAssistanceCommittee PEFA Public Expenditure& FinancialAccountability DfID Departmentfor InternationalDevelopment PFM PublicFinanceManagement EC EuropeanCommission PRR Priority ReformandRestructuring EO1 Expressionof Interest PSIB ProgrammaticSupportfor InstitutionBuilding EPAPI EmergencyPublicAdministrationProjectI PPU ProcurementPolicy Unit EPAPI1 EmergencyPublicAdministrationProjectI1 PU ProcurementUnit FM FinancialManagement QCBS Quality& Cost BasedSelection FMA FinancialManagementAdviser QBS QualityBasedSelection FMR FinancialMonitoring Report RIMU ReformImplementationManagementUnit GDP Gross DomesticProduct RFP Requestfor Proposals GOA Governmentof Afghanistan SAF SecuringAfghanistan's Future HR HumanResources SBD StandardBidding Documents HRM HumanResourcesManagement SDU Special DisbursementUnit HRPD HumanResourcePolicyDepartment SOE Statement of Expenditures I-ANDS InterimAfghanistan NationalDevelopment TA Technical Assistance Strategy IARCSC IndependentAdministrativeReformandCivil TOR Terms of Reference Service Commission IBRD InternationalBank for Reconstructionand UNDP UnitedNationsDevelopmentProgram Development IDA InternationalDevelopmentAssociation USAID UnitedStatesAgency for International Development Vice President: Praful C. Pate1 Country Director: Alastair McKechnie Sector Director: Sadiq Ahmed Sector Manager: IjazNabi Task Team Leader: Anne Tully FOR OFFICIAL USE ONLY Table of Contents I. COUNTRYBACKGROUNDAND STRATEGY ....................................................................... 1 A. COUNTRYBACKGROUND .................................................................................................................. 1 B. GOVERNMENT ..................................................... C. ACHIEVEMENTS CIVIL SERVICEMANAGEMENTREMAININGAGENDA REFORM............23 PUBLIC ADMINISTRATIONREFORMFRAMEWORK IN AND FOR D . GOVERNMENTSTRATEGY ................................................................................................................. 6 I1. IDA'S RESPONSE ......................................................................................................................... 6 A. BANK'SINTERIM IDA'SPREVIOUSINVOLVEMENTINPUBLICADMINISTRATIONREF0RM............................. STRATEGY ............................................................................................... B . C. RATIONALEFORIDA'S INVOLVEMENT INPUBLIC ADMINISTRATION ............................................... 8 I11. THE PROPOSEDPROJECT ....................................................................................................... 9 A. PROJECT OBJECTIVE.......................................................................................................................... 9 B . PROJECT DESCRIPTION .................................................................................................................... 10 IV. PROJECT IMPLEMENTATION AND OVERSIGHT ARRANGEMENTS ........................ 13 A. IMPLEMENTATION ARRANGEMENTS . ........................................................................ 13 B. AND 17 C. MONITORING EVALUATION..................................................................................................... BENEFITS AND RISKS ...... ........................................................................................................ 17 D . 19 E. GRANTCONDITIONSAND COVENANTS ........................................................................................... ENVIRONMENT AND SOCIAL SAFEGUARDS ..................................................................................... 19 ANNEX I PROJECT COST . .................................................................................................................... 20 ANNEX I1 RESULTSFRAMEWORK 21 ANNEX I11 DESCRIPTIONOF COMPONENTS .. .................................................................................................. ................................................................................ 25 A. DESCRIPTIONCOMPONENT 1:ORGANIZATIONAL REFORMSWITHIN COREMINISTRIES OF ($8.4~).25 B. DESCRIPTIONCOMPONENT2.IMPLEMENTATIONOF MERITBASED OF HUMAN RESOURCE MANAGEMENT ................................... c. 27 DESCRIPTION COMPONENT 3 OVERSIGHT AND MONITORINGTHEPARPROGRAM.............. 33 POLICIES AND PRACTICESINGOVERNMENT ($8.7 MILLION) OF . OF ANNEX IV: PROCURMENTARRANGEMENTS ................................................................................ 36 A . 36 B. COUNTRYCONTEXT........................................................................................................................ 37 C . PROCUREMENTOVERVIEW ............................................................................................................. ASSESSMENTTHE AGENCY'S OF CAPACITY TO IMPLEMENT PROCUREMENT ................................... 37 D. 38 E. PROCUREMENTPLAN...................................................................................................................... FREQUENCY OF PROCUREMENTSUPERVISION ................................................................................. 38 ANNEX V: FINANCIAL MANAGEMENTAND DISBURSEMENTARRANGEMENTS ..............44 MAP: AFG 33358 ....................................................................................................................................... 53 Tables Table 1: Civil Service Reform Achievements ................................................................................................ 4 Table 2: IDNARTFSupportedProjects in Public AdministrationReform ................................................... 7 Table 3: Overall FundingRequirement ........................................................................................................ 13 Table 4: Project Risks................................................................................................................................... 19 This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Table A1. 1: Project Cost Summaryby ComponentAnd Category............................................................. 20 Table A2. 1: Overall Results........................................................................................................................ 21 Table A2.2: Objectives, Actionable Indicators and Benchmarks................................................................ 23 Table A3. 1: Component 1Cost Summary.................................................................................................. 27 Table A3 .2: Component3 Cost Summary.................................................................................................. 33 Table A3. 3: Component3 Cost Summary .................................................................................................. 35 Table A5.2: Audit Reports........................................................................................................................... 50 Table A5. 1: Action Plan.............................................................................................................................. 47 Table A5. 3: IDA Financingby Category of Expenditure (US$ million) .................................................... 51 Box 1: Afghanistan CompactBenchmarks for Public Administration Reform .............................................. 2 Box 2: Linkage with PSIB Series ................................................................................................................... 9 Box A3. 1: Functions of the IARCSC.......................................................................................................... 33 Figure A5. 1: Funds Flow Chart................................................................................................................... 48 ISLAMICREPUBLIC OF AFGHANISTAN CIVIL SERVICE REFORMPROJECT TECHNICAL ANNEX I. COUNTRYBACKGROUNDANDSTRATEGY A. CountryBackground 1. Buildingan effective state - that can provide security and services to the people, while protecting their rights - has been at the heart o f the reconstruction effort in Afghanistan. At the end o f 2001, after nearly a quarter century o f wars and civil strife the political systemhad largely collapsed. While many o f the formal structures and some o fthe traditional practices o f public administration remainedinplace, they lacked the human, financial and physical resources to do their job, particularly in a modem context. The new government faced enormous challenges in restoring security, talung charge o f running the country, building consensus across various political factions and rebuilding the very limited capacity o f the state. Inthis context, remarkable progresshas beenmade inrestoring institutions of governance and laying the basis for a strong economic recovery inorder to improve livelihoods. 2. On the political front, achievements have been signifcant: A new Constitution was adopted in January 2004 and Afghans actively participatedinelections for their first democratically elected President (former Chairman o f the Afghan Transitional Administration, Hamid Karzai) in December 2004. Elections for the Wolesi Jirgu (lower house o f the National Assembly) and for provincial councils took place in September 2005. Female turnout in both elections was around 40 percent o f the total electorate and more than a quarter o f Wolesi Jirgu members are female. The inauguration o f the National Assembly inDecember 2005 markedthe formal conclusion o fthe Bonnpolitical transition process. 3. Afghanistan's economy has recovered stronglyfrom a state of collapse at the end of the Taliban rule. The real value o f non-opium Gross Domestic Product (GDP) increased by 29 percent in 2002/03, 16 percent in 2003/04, 8 percent in 2004/05, and 14 percent in 2005/06. This solid performance was supported by the government's sound macroeconomic polices. Afghanistan has successfully completed all quarterly reviews under the IMF Staff-Monitored Program and the first review o f the Poverty Reduction and Growth Facility (PRGF) program. Monetary policy has been restrained, supported by the adherence to strong fiscal discipline and a no-overdraft rule that prohibits Central Bank financing o f the deficit. Inflation i s decelerating with year-on-year inflation declining to 5.2 percent in September 2006 (compared to 16percent in2004/05). 4. Despite the solid economic recovery and sound macroeconomicpolicies,progress in development remains patchy across the country. Continued security problems are encountered almost daily by the Afghan population and by aid workers. Sustaining gains in development outcomes, particularly in health and education, i s challengmg in this regard gwen the inability o f government and donor agencies to access various communities. The opium economy, accounting for around a quarter o f total (drug- inclusive) GDP, remains Afghanistan's leading economic activity, and a key contributor to insecurity, undermining the institution-building process, and distorting economic activity. As more donor resources come on to the core budget - akey objective o f Government - there are pressures on government agencies to quickly deliver results on the ground, requiring significant increases in management and implementation capacity. Inthe context of enormous needs, weak capacity and increasing insecurity in many areas, a sense o f frustration is emerging at the ability o f the government to make public institutions relevant to the lives o f ordinary Afghans. 1 B. GovernmentPublicAdministrationReformFramework 5. The Government's Public Administration Reform (PAR) Framework, as reflected in Afghanistan's Interim National Development Strategy (I-ANDS)l has as its goal the establishment o f strong state institutions at central and subnational levels capable of achieving measurable improvements in the delivery o f services and the protection o f rights of all Afghans. The PAR Framework flows from the I- ANDs which envisions a well functioningand affordable administration that is small and focused on core functions. It's elements can be summarized as: Establishing a well-performing, merit-based civil service; Strengthening the structure o f Government: line ministries and sub-national administration; and 0 Buildinginstitutions o fpublic accountability. 6. PAR i s necessarily a long term agenda, requiring sustained changes in institutional and individual n o m s and behavior. Nevertheless, the Government has responsibility to achieve the benchmarks for PAR set under the Afghanistan Compact (Box 1) and demonstrate specific results by the end o f 2010. The PAR Framework is intended to guide and coordinate the Government and development partner interventions duringthe rest o fthe Compact period. Box 1: Afghanistan Compact Benchmarks for Public Administration Reform 2.1.1 By 1389 (end-2010): Government machinery (including the number o f ministries) will be restructured and rationalized to ensure a fiscally sustainable public administration; the civil service commission will be strengthened; and civil service functions will be reformed to reflect core functions and responsibilities. 2.1.2 A clear and transparent national appointments mechanism will be established within6 months, applied within 12 months, and fully implemented within 24 months for all senior level appointments to the central government and the judiciary, as well as for provincial governors, chiefs o f police, district administrators and provincial heads o f security. 2.1.3 By end-2006, a review o f the number o f administrative units and their boundaries will be undertakenwith the aim o f contributing to fiscal sustainability. 2.1.4 By end-2006, in furtherance o f the work of the civil service commission, merit-based appointments, vetting procedures and performance-based reviews will be undertaken for civil service positions at all levels o f government, including central government, the judiciary and police, and requisite support will be provided to build the capacity o f the civil service to function effectively. Annual performance-based reviews will be undertaken for all senior staff (Grade 2 and above) starting by end-2007. 7. To date PAR efforts have mainly focused on establishing a well-performing, merit-based civil service, under the leadership o f the Independent Administrative Reform and Civil Service Commission (IARCSC). Buildinga capable civil service will continue to be the major thrust o f the PAR Framework; but good service delivery requires more than competent civil servants. The structures o f many Government organizations that employ these officials have become informal and need updatingto be able to respond to the functions that these organizations are meant to deliver. Meanwhile, interactions between central ministriesand sub-national administration are sometimes weak, thus raising the need to examine if `The Government completed its Interim Afghanistan National Development Strategy (I-ANDs)andpresented it, together with the Afghanistan Compact to the international community inBerlin inJanuary 2006. 2 more functions can be delegated to provincial and district governments. Thus the second element of the Framework will be to strengthenline ministries and sub-national administration. 8. Taken together, these two elements will produce an effective civil service workmg within an efficient Government structure, but is still missing a critical piece: the Government's accountability to its citizens. Some o f the checks and balances on government will come from the National Assembly and from the judiciary. The public and media will also have a role inmonitoring Government's performance and holding it accountable. Thus, building institutions of public accountability is the third element of thePAR Framework. C. AchievementsinCivilService ManagementandRemainingAgenda for Reform. 9. Continuingreforms and capacity buildingwithin the civil service i s at the core o f the Government's Public Administration Reform Framework. The Government has made considerable progress over the last 5 years inputtinginplace the basis for a modem civil service inAfghanistan (Table 1below). This has included: (i)the establishment o f the IARCSC through the IARCSC Decree and the operationalization o f its departments; (ii) approval o f a new Civil Service Law; (iii)some progress in functional audits leading to proposals for new structures o f key ministries and agencies at the central level - through the Priority Reform and Restructuring; (iv) initial policy work on a new pay and grade structure; (v) progress on the development o f a new methodology and framework for reform and restructuring; and, (vi) progress inmerit based recruitment for both senior andjunior level civil servants. 10. Critical to the government's early reform strategy was the Priority Reform and Restructuring (PRR) program, begun in 2003. PRR enabled the staff o f ministries/agencies, or those in selected departments undertahng particular key functions, to be placed on an interim additional allowance for a fixed term inreturn for undertahng a reform and restructuring process. The initial objective o f the PRR was to restore administrative capacity in key departments based on the combination o f (i)careful restructuring o f such units including revisions o f organizational structure and job descriptions (ii) selection o f key staff through an open and competitive process, and (iii) increases through an interim pay allowance system so as to attract qualified staff into government. PRR was considered an interim measure to prepare the way for the introduction o f a new grade and pay structure for the civil service. 3 Table 1: Civil Service Reform Achievements Structure o f Small size o f civil service (excluding. Teachers, police and armed forces) Government maintained at around 130,000 inline with MTFF Number o f ministries reduced from 31in2002 to 26 in2006. Further rationalization being discussed by Parliament. Cabinet Secretariat established and functioning. Parliamentary Secretariat established and functioning. Legal and Civil Service Law (CSL) approvedby Cabinet inAugust 2005. Regulatory Keyregulations draftedincluding Code o fConduct, Appointments, Appeals Framework Performance Appraisal and Pay and Grading. Ministryand Priority Reformand Restructuring (PRR) programbeing implemented - over agency 36,700 positions approved at PRR Stage 2 in32/44 ministriedagencies. restructuring Pilot restructuring o f 3 provincial Governor's offices and one district Governor's Office. Human Resource 1429 Grade Two and above merit-based appointmentsprocessed by the Management Appointments Board; 7260 Grade Three andbelow merit-based appointments processed by ministries and agencies and monitored by Appointments Board; Appeals Boardhas evaluated 279 appeals inareas o f appointments and transfers. New eight-grade structure designed. Capacity 93 and 100persons appointed through the Afghan Expatriates Programand Development LateralEntryProgramto plugcritical gaps inthe civil service. . Training and development strategy developed and 140 senior civil servants trained insenior leadership and 1530 civil servants trained inmanagerial and common competency training. New Civil Service Training Institute established. Stewardship and IARCSC established inM a y 2002 to lead PAR reforms across the public sector. Oversight o f PAR Cabinet Sub Committee andPAR Steering Committee established. 11. Inorder to build upon this experience and strengthen the performance of the civil service, the Government recognizes that it will have to address a number o f organizational and systemic capacity constraints relatedto civil service management. 12. Incomplete Reorganization o f Line Ministries. Progress has been made in many ministries, under PRR, inputting inplace a basic revised structure for their organization and undertakmg some merit based recruitment. This work, however, i s incomplete. As a result o f a lack o f time, insufficient internal capacity and technical assistance, many PRR proposals lacked proper strategic analysis o f missions and functions particularly in relation to their overall service delivery objectives. Although a "whole of ministry" approach was adopted around November 2004, restructuring of functions did not allow for all departments to work as an integrated whole, especially those located at provincial and district levels. Inadequate attention to the establishment o f HR departments undermined effective recruitment since staffing plans that specified numbers, job descriptions, grade-levels and qualifications o f staff needed in new structures, were not sufficiently finalized. Proposals did not specify any monitorable indicators - either o f process or outcomes, and once proposals were prepared most ministries lacked the capability or resources to actually implement reforms. 13. The Government i s now revising its administrative reform framework to take account o f the lessons learned under PRR shifting the focus away from previous asymmetric and department-centered reforms to more comprehensive reforms involving entire ministries (centre to sub-national) with a stronger focus on monitoring service delivery results. 4 14. Comuleting the Regulatory Framework for Sound Civil Service Management. The Civil Service Law, approved by Cabinet in August 2005, outlines the structure and functions o f the IARCSC and provides the basic law covering the organization o f the Afghan civil service. It also lays the foundation for a merit-based and professionally managed civil service. Within this legal structure, technical assistance funded by the ADB and from IDA'SEPAP I1supported the drafting of priority regulations including Appointments and Appeals Regulations, Performance Appraisal and Pay & Grading Regulations. Remaining regulations now need to be drafted including on job classification, promotions, redeployment and retrenchment, attendance, contract employees, pensions, and termination, to complete the regulatory environment for the management of civil servants. Ultimately all o f these regulations and the procedures for applying themneedto be collatedinan integrated HR operations manual, and HR staff ineach agency o fthe public sector needsto betrained to apply this "manual". 15. Inadequate Human Resource Management Capacity in Line Ministries. The implementation o f key HR policies and procedures i s dependent on the effective dissemination o f these policies to qualified staff located in reasonably functioning HR units within line ministries. HR units in Ministries and government agencies have been primarily concerned with personnel administration and record keeping. The Civil Service L a w now requires Ministries, agencies, provincial and district offices to assume the full range o fhumanresources functions, includingthe collection o f critical employee information. Assistance under EPAP I1set out a theoretical organizational structure for HR units within line ministries and a training schedule in all aspects o f HRpolicies, procedure and regulations for the estimated 1025 HR staff plusapproximately 1000line managers across the civil service. 16. Building Credibility o f the Merit Based Pnnciple in Appointments. Merit based appointments, along with a fair and reliable arbitration mechanism, is the cornerstone o f the government's civil service reform strategy. In Afghanistan, the Appointments Board (AB) is responsible for ensuring that appointments are made according to open, merit-based and competitive principles, as set out in the Civil Service Law and for making senior appointments (Grade Two and above). The AB has made significant progress towards establishing a merit based appointments system. To a large extent, there i s fair and open competition with appointments made on merit. Nevertheless, the gains made are fragile and there i s a need to address a widely held perception that the process for senior appointments i s unfair or even corrupt. There i s also a need to shift focus from quantitative targets to the quality and transparency of appointments. Under EPAP 11a plan for improving the qualitative and quantitative performance o f the AB was prepared. In addition, as part of IDA'Swork program on anti corruption, a vulnerability assessment was conducted o f merit based appointments. As a result, the AB has adopted an action plan to improve the quality and transparency o f the various stages o f the appointments process as well as address weaknesses and vulnerabilities. 17. Poor Pay and Incentives for Recruitment, Retention Performance o f Staff. Implementation o f a new pay and grade policy to replace the ad hoc utilization o f interim additional allowances under PRR i s crucial to the Government's efforts to attract and retain qualified staff and to reduce incentives for corruption within the civil service. With support funded under EPAP 11, an 8-grade structure has been designed. New pay scales attached to these grades (with a minimumsalary o f $80 and maximum o f $800) are being discussed by Cabinet, along with a sequenced implementationplan involving regrading senior positions (Grades 1 and 2) first, followed by junior grades on a ministry-by-ministry basis. Complementary policies and processes for severance, early retirement, and pensions linked to the P&G policy would be developed. Suitable good governance processes and safeguards would be built into the reform for the implementationo fthe new P&G system. 18. MonitorinP and Oversight. The capacity o f the IARCSC to manage and facilitate the implementation o f critical civil service reforms has steadily increased since its establishment in June 2003, but remains weak. Inparticular its capacity to provide strategic oversight, coordinate and monitor 5 the civil service reform program and to implement corrective measures in a timely manner needs to be improved. Broader government oversight also suffered when the Ministerial Advisory Committee (MAC) was disbandedinAugust 2005. The Government has adopted a set o fmonitorable indicators for the civil service reform effort, inline with the I-ANDs Benchmarks, and the IARCSC i s strengthening its capacity to undertake monitoring and communicating against these benchmarks. In addition, a recently establishedPAR Steering Committee will provide greater oversight o fthe various PAR initiatives. D. Government Strategy 19. Building on experiences over the last 5 years, and taking into account the remaining reform agenda, the IARCSC has now prepared a costed Civil Service Implementation Plan - including actions required and related timeline - for achieving the relevant PAR benchmarks of the Afghanistan Compact over the remaining timeframe (20 10). 20. The cost o fthe ImplementationPlan i s baseduponthose elements inthe PAR Framework that are well advanced inpreparation -particularly inthe area o f establishing a well performing merit based civil service and strengthening the structures o f line ministries. As other elements o f the PAR Framework are developed the overall reform implementationplan and costing will be updated. The investments required to implement this plan have been costed at approximately $80.7 million over three years2. Together with the set o f actionable and monitorable indicators that have been agreed with Government, this Plan constitutes a realistic path for bringingabout some changes incivil service management and performance, and trachng progress along the way. 21. Donors are now coming to agreement to align their support to civil service reform, to the Government's program as reflected inthe PAR framework, the costed ImplementationPlan, andthe set of monitorable indicators. Some donors have expressed a preference for channeling support to the reform program through the World Bank-administered Afghanistan Reconstruction Trust Fund(ARTF). 11. IDA'S RESPONSE A. Bank's InterimStrategy 22. The proposed project directly underpins the objectives o f the World Bank's updated Interim Strategy Note (ISN) 2006 for Afghanistan. Enhanced capacity and accountability within government are critical to achieving development outcomes. "Developing the capacity of the state" is one o f the two broad overlapping objectives set out in the ISN, with specific attention to developing human (education, civil service etc) and financial capacity. Most specifically, under the broad state building theme, the Bank's I S N focuses attention on achieving results under three strategic pillars one o f which is to: Build the capacity of the state and its accountability to its citizens to ensure theprovision of services that are affordable, accessibleand of adequate quality. 23. This project makes a specific contribution to the broader state building agenda which is at the heart of the ISN, through continuing systemic administrative reforms withm the civil service and strengthening the humanresource management capacity o f Government. * Thisamount excludes the ARTF Management Capacity Programalready approved. 6 B. IDA'SPreviousInvolvementinPublicAdministration Reform 24. IDA has supported a series o f projects (Table 2) aiming to buildcapacity within government in key common functions, namely financial management, procurement, audit and human resource management. These areaswere considered essential to demonstrate government capacity to manage donor resources effectively for reconstruction purposes. Tal operation3 Amount Date Focus Scopeof Activities EPAP I $10 m April 2002 Treasury, procurement, Primarily operational external audit - support through large TA contracts EPAP I1 $8.4m June 2003 Treasury, procurement, civil Continued operational service management support. Early support PACBP $27 m I Dec. 2004 ITreasury, Financial II Furtheroperational for PRR and civil service mgt. management systems, support. Separate procurement, internal and capacity building external audit components. ARTF $13m Dec. 2004 Afghan AdvisersILine Short term capacity AEPILEP managers injection ingovt. PSIB Iand $80m July 2004, Rolling support for Govt Budget support aligned I1 each Dec 2005, development strategy to agreedpolicy especially inPAR and fiscal triggers management. 25. Early assistance focused on the provision o f emergency capacity in critical fiduciary areas. Because o f the emergency nature o f this assistance, broader institutional development and capacity buildingactivities didnot proceedas quickly as expectations grew inthisregard. 26. The Second Emergency Public Administration Project (EPAP 11) also provided funds for the government's emerging Public Administration Reform program. The purpose was to lay the basis for broad based civil service reform directed at increasing the efficiency with which services are delivered to the public. These funds supported activities to strengthen the core functions o f the IARCSC to support the Pnority Reform and Restructuring process (PRR) and other critical activities in the PAR program, including laying out the legislative agenda and strengthening merit based appointments procedures. 27. The midterm reviews o f EPAP I1and the ICR o f EPAP Ihave provided a number o f lessons that have beenbuiltinto the proposed grant and complementary analytical work. 0 For an emergency operation to be effective in a severely weakened post-conflict institutional environment, intense Bank supervision is essential; 0 The expectations for capacity buildingand institutional strengthening needto be alignedwith the availability and skills levels o f government counterparts. All assumptions regardingthe availability and capability o f counterpart staffneedto be documented and validated with great care and revisited over time; EPAP - Emergency Public Administration Project; PACBP-Public Administration Capacity Building Project; PSIB-Programmatic Support for Institution Building; AEPILEP- Afghan Expatriate ProgradLateral Entry Program 7 The government will needto engage external advisers inkey fiduciary areas for as long as it takes to buildsufficient capacity incore public administration areas even ifthose advisers become increasingly transitional; Complementary regulatory, organizational and systems reforms (human resource management, financial managementprocurement etc), inaddition to individual capacity building, are neededto progressively strengthen local capability over time; 0 Implementationo f sensitive and difficult institutionalreforms requires highlevel leadership and commitment within line ministries -with central facilitation and oversight. C. Rationalefor IDA's InvolvementinPublicAdministration 28. Public administration reform is essential to rebuilding the state, institutionalizing improved governance and combating, what is perceived to be, a growing corruption problem. Strengthening administrative capacity within government directly underpins the government's I-ANDs,promotes use o f government systems over time and more specifically supports effective management o f IDA's portfolio. Without a medium term strategy to buildcore capacities inline ministries, Afghanistan is likely to remain dependent on international technical assistance and/or donor funds flowing outside the government's core budget for some time. 29. The proposed project is one element o f a wider public administration reform agenda that has been developed by the government, with IDA support, to address these medium term issues. 0 IDA'Sanalytical work is assisting the Government to define priorities and programs in Public Administration Reform. This will include work on: the evolution o f subnational governance over time, and strengtheninginstitutions o f accountability. As part o f defining work programs under this broader PAR framework, IDA has assisted the government in defining a realistic implementationplan for undertaking civil service reforms in line with compact benchmarks. 0 IDA, with other donor support, is assisting the government develop its anticorruption strategy and identifying opportunities to limit the vulnerability to corruption, including in public administration reform; The IDA Programmatic Supportfor Institution Building (Box 2) series o f Development Policy Loans supports the achievement o f critical reforms in public financial management and public administration reform; 0 A proposed IDA Public Financial Management Reform project is being agreed to support the strengthening o f financial management, procurement and audit practices throughout government; The ARTF financed Management Capacity Program i s supporting the interim buying-in o f Afghan consultants into civil service positions to manage core common function departments while broader capacity buildingefforts take hold. 8 I Box 2: Linkage with PSIB Series Institution-building i s at the core o f the objectives o f the PSIBs and significant achievements have been made under PSIB Iand 11, which are fiuther advanced inthe proposed PSIB 111.The program supports improvements in the public resource management legal framework; specifically civil service, procurement and financial management laws were enacted. The PSIB series specifically supported the gazetting o f the Civil Service Law, a Code o f Conduct for government beneficiaries and approval o f the PRR decree. Beyond the change in the regulatory framework, the program supported reforms in organizational restructuring, merit based appointments, budget management processes and budget execution. A prior action for PSIB I11is the adoption by the PAR Steering Committee o f a costed implementation plan for civil service reforms, along with an actionable monitoring framework. The plan reflects priorities within the Government's PAR Framework and five pillar strategy as prepared inNovember 2005. Inaddition, the adoption o f an Action Planto approve the performance o f the Civil Service Appointments Boardis a further PSIBIII trigger. The CSR project will directly support the enhancement o f these institutional reforms by taking forward the work on the regulatory framework, especially inpay and grading, the application o f merit based recruitment principles through the Appointment Boards Action plan, and the monitoring and evaluation required to ensure results are achieved from donor investments inthe Government's Implementation Plan 30. The IDA Civil Service Reformproject complements the above activities by strengthening human resource management practices throughout government - through addressing the regulatory framework, organizational basis and capacity buildingneeds surrounding better management o f personnel. 111. THE PROPOSEDPROJECT A. Project Objective 31. The proposed IDA CSR project supports the implementation o f critical interventions in the Government's PAR Framework and Civil Service ImplementationPlan. The project builds on the lessons learned from earlier involvement in public administration reform in Afghanistan and elsewhere. Specifically, the project recognizes that sustaining reforms in public administration, and particularly as they relate to public sector employment practices, takes time. Reforms need to be flexible to wider decision-malung on the role o f the state and attitudes concerning the nature o fpublic service. 32. With this focus, the main development objective for this project i s that across the time frame o f the project, (by 2011), a significant proportion o f service delivery ministries will be performing their functions to an acceptable level and can be held accountable for the use of public resources. This will have resulted from core ministries having been reorganized according to functions and civil servants being managed according to clear rules and procedures. 33. Indicators o f the progress inmeetingthe development objective would include, among others, The number of service delivery ministriesthat are reporting on progress toward achieving their sectoral objectives, and the use o fresources for those purposes. The proportion o f civil service appointments based on merit, and the rigor o fthe merit- based appointments process. The consistency o f application o f the Civil Service Law and regulations to the management o f civil servants. 9 0 The extent to which LARCSC i s coordinating donor support for civil service reform, and monitoring and reportingo fthe approved civil service reformimplementationplan 34. The proposed IDA project has been prepared in line with the Government's implementationplan and complementary to expected support from other donors. Some o f the activities within the Government's implementation plan, and within the proposed IDA project, could be scaled up as further fundingbecomes available from the ARTF or other donors. B. ProjectDescription 35. The project is comprised o f three components designed to strengthen civil service organization and management, including: organizational reforms in line ministries; merit based human resource management policies andpractices; and PAR Oversight and Monitoring. 36. T h s i s primarily a technical assistance project. Attracting quality technical assistance to Afghanistan has been a costly and mixed experience. There are several lessons learned for going forward. 0 Combining international specialists with nationaljunior specialists who can conduct day to day liaison with counterpart civil servants (and reduce requirement for long term advisers); 0 Physically locating all specialists (international and national) with civil servant counterparts; 0 Utilizing the Program Coordination Department to ensure coordination o f technical assistance activities under the project; 0 Ensuringdedicated counterparts are identified - even if recruited in the short term through the Management Capacity Program; 0 Ensuring TOR and work plans for technical advisers - both national and international - emphasize the importance o f capacity transfer; 0 High-level technical oversight and monitoring o f TA outputs, including capacity transfer, to be reviewed quarterly by the PAR Steering Committee i. COMPONENT1.ORGANIZATIONALREFORMSWITHINCOREMINISTRIES. ($8.4 MILLION) 37. This component will provide support to a number o f core ministries to improve service delivery throughrestructuring organization to meet functions; directed by a ministry-determinedprocess. 38. This will support the Compact benchmark 2.1.1 By end-2010 the Government machinery will be restructured and rationalized to ensure a fiscally sustainable public administration; ..... civil service functions will be reformed to reflect corefunctions and responsibilities. 39. Activities taken up under this component will result in a number o f core ministries being able to perform their sector specific functions more effectively, and with greater transparency for the use of public resources. More specifically assistance will be providedto the following two subcomponents. (a) Line Ministry Reorganization. Buildingon the experiences under PRR, the project will provide technical assistance, training and limited equipment support to core ministries as they take charge o f their own reorganization efforts. At the end o f the project period, line ministries, whose reorganization has been supported by this Component, will be functioning systematically according to their own work programs, instead o f undertaking ad hoc activities responding to donor demands. They will be able to justify to Cabinet and Parliament the use o f public and donor resources. Some o f the steps towards this end will be: 10 Preparing the ministry's three year strategic program including articulating the specific sectoral deliverables and means o fmonitoring; Consolidating results o f PRR and completing the restructuring o f non PRR'd departments including at subnational levels; Recruiting staff corresponding to the new structure and applying enhanced HR policies and procedures to the ministryas a whole -includingnew grade structures; Identifying funding gaps inthe ministry'sstrategic planand coordinatingdonor support for those; Producing an annual performance report for Cabinet and Parliament that specifies progress in achievingresults. 40. While ministryrestructuring will address core technical service functions, establishing common functions such as finance, administration, and human resource management, i s equally important. Each ministrymay set upa ReformImplementationManagement Unit(RIMU)to leadits restructuring. 41. Determination o f which ministies are supported under the project will be finalized in consultation with the Government, (through the PAR Steering Committee) according to agreed criteria. These criteria are likely to include: relative importance o f the ministry's work in terms o f service delivery and national interest; leverage over financial and humanresources; commitment to undertakmga real reform demonstrated by, progress already made under PRR; existence of a clear vision; some monitoring o f performance/results; and, intent to invest (with donor support) in a major reform o f its technical or service delivery activities. Under this grant, 4-5 ministries should be able to be supported. Support for other ministries would be provided by other donors andor ARTF in line with guidance providedby the IARCSC. (Estimated Cost $7.Im) (b) IARCSC Facilitation and Coordination, The component will support technical assistance and capacity building for the IARCSC to facilitate reforms across line ministries, ensuring consistency in approach. This will involve developing common re-organization templates and best practice guidance, and coordinating the efforts in selected ministries. It is expected that the IARCSC would enter into an agreement with the relevant ministrywhich would specify the resources to be provided and the results the ministryexpected to achieve with those resources. The emphasis will be on the IARCSC facilitation and coordination o f reforms, not implementing the reforms themselves. The PAR Implementation Department o f the IARCSC will be supported with technical assistance to guide this program to sufficient standards. (Estimated cost $1.3m) ii. COMPONENT2.IMPLEMENTATIONOFMERIT BASEDHUMAN RESOURCEMANAGEMENT REFORMSINGOVERNMENT ($8.7 MILLION) 42. This component will support the establishment and implementation across government o f modem merit based HRpolicies and practices. 43. It will specifically support achievement o f Compact Benchmark 2.1.4:By end-2010, in furtherance of the work of the civil service commission, merit-based appointments, vetting procedures andperformance-based reviews will be undertakenfor civil servicepositions at all levels of government, including central government ... Annual peflormance-based reviews will be undertaken for all senior staff(grade 2 and above) starting by end-2007 44. As a result o f activities supportedunderthis component, a critical mass o fthe civil service will be managed, predictably and consistently, according to updated civil service management rules and procedures. This will have resulted from implementing a modem grading structure and pay levels; merit- 11 based appointments and vetting procedures undertaken across the civil service; annual performance-based reviews undertaken for all senior staff; and training to implement the policies throughout government. 45. More specificallyassistance will be providedthrough three sub components: (a) Establishing and extending HR policies and practices to line ministries. This will involve preparation o f remaining regulations and development o f procedures under the civil service law. Technical assistance will be providedto line ministries inthe establishment o f HR departments, including their functions, size, job descriptions and competencies; and in the application o f new HR policies and procedures. As this i s done, an extensive program o f training and mentoring will be provided for the estimated 2000 HR staff and line managers in revised human resource management procedures. This program o f training may be conducted inconjunctionwith the Civil Service Training Institute with a view to malung HR Management a core module o f civil service training. Support will also be provided for finalization o f a pension reform policy. Assistance will be provided to the Human Resources Policy Department o fthe IARCSC to carry out this program to sufficient standards. (Estimated Cost $3.5m). (b) Strengthening the Appointments Procedures, according to the agreed action plan, so that merit based recruitment for senior positions proceeds according to publicly agreed standards and targets and so that monitoring o f appointments at junior levels i s improved; and strengthen the Appeals Board'to ensure effective conduct o f appeals, including those likely to arise fi-om the pay and grading reform. (Estimated Cost $1.4m) (c) Implementing the government's pay and grade reform in line with fiscal parameters and ministry implementation readiness. This will involve: undertalung a sustained communications plan (funded under component 3 o f this project) inorder to buildunderstanding o f the new reform; re-grading senior management positions onto the new 8 grade structure; developing procedures and guidance for regrading and reassessing level 3 and below positions, and supporting this in line ministries; and oversight, quality control andmonitoring o fprocess. (Estimated Cost $3.8m) iii.COMPONENT3.OVERSIGHTANDMONITORINGTHEPARPROGRAM($3.3MILLION). OF 46. This component o fthe project will support the IARCSC incarrying out its stewardship role under the Civil Service Law to "lead, regulate, formulate and implement structure policies of the public administration system" (Article 5). 47. As a result o f support provided under this project the Government should have in place a fully funded, regularly monitored and well coordinated and communicated Civil Service Reform program. Assistance under the project will support two related sub components. (a) Program Coordination and Management. The PAR framework and Civil Service Implementation Plan provide an opportunity for greater coordination o f donor support. The Program Coordination Department (PCD) o f the IARCSC i s responsible for coordinating donor responses in support o fthe Government's civil service reformprogram. Assistance will be provided to enable the PCD to take charge o f coordinating donor investments around this agreed framework and implementation plan. The PCD will be responsible for translating the priority needs o f Government into investment programs that could be submitted to ARTF, or other sources, for funding. With respect to IDA and other donor financed projects, the PCD would also ensure coordination across technical assistance providers as well as adherence to grant agreements, identify bottlenecks interms o f implementation and suggest solutions. The project will provide technical assistance inprogram management and donor relations in addition to financial management and procurement to support these tasks. (Estimated Cost $1.6m) 12 (b) Monitoring and Evaluation, and Communication. Strengthening monitoring o f outcomes o f civil service reform efforts and reporting regularly to the executive, to Parliament and to the wider community is critical for managing expectations and building support for such reforms. The government has adopted a set of actionable indicators for monitoring progress in Afghanistan's civil service reform program. These complement the ongoing monitoring o fbenchmarks under the I-ANDs. 48. The Administrative Reform Secretariat o f the IARCSC i s responsible for developing policy relating to public administration reform, communicating this across government and to the public, and monitoring the implementation o f administrative reform activities. Assistance will be provided to enable the A R S to periodically monitor and evaluate progress on civil service reforms, identify lessons learned, support informed decision makmg and identify areas where changes in direction are needed. It will also support ARS' efforts in guiding line ministries with establishing clear monitoring indicators. The M&E outputs should be used to build a stronger understanding by political representatives and senior officials, including the Office o f the President, o f the role o f PAR. Assistance will also be provided to conduct a clear communication strategy and outreach program to policy makers and key stakeholders (Estimated Cost $1.7m) 49. Cost Estimates. The cost estimated for each component is based upon the level o f work estimated to be needed in specific areas and the expected effort required to complete certain tasks. Experience under earlier operations has also provided a guide to unit rates on contracts. Component US% Organizational Reforms within core Ministries 8,400,000 Implementation of Merit Based HumanResource Management 8,700,000 IV. PROJECTIMPLEMENTATION AND OVERSIGHT ARRANGEMENTS A. ImplementationArrangements 50. The CSR project will be implemented over a period o f 48 months, under the following arrangements Governanceand Management Structure 5 1. The project would be implemented under the authority o f the Independent Administrative Reform and Civil Service Commission (IARCSC). The responsibility would be delegated to the Chairman o f the IARCSC. Oversight o f the program would be provided by the PAR Steering Committee comprising senior representatives o f the IARCSC, the Ministry o f Finance, the Office o f the President and other ministries as required, to maintain focus on results, good communications and a consolidated view o f the programand to discuss and recommend any necessary policy and regulatory improvements. 52. Coordinationo fthe various activities under the project would be the responsibility o f the Program Coordination Department (PCD). The specific role o f the PCD would be to plan, coordinate, and monitor, in liaison with the Director General o f the Civil Service Management Department and the Director o f the ARS, the overall project work program and the achievement o f its intended results. It 13 would be responsible for ensuring that all requirements under the grant agreement are met with regard to timely reporting and progress monitoring. Specific ImplementationArrangementsfor Project Components 53. Each responsible for implementing a component and sub-component would establish its own daily implementation arrangements (and are further outlined in the annexes). The PCD Director would convene periodic meetings o f these working level authorities to identify and resolve implementation issues that were outside the scope o ftheir individual authorities. 54. The PCD would be the focal point for organizing procurement under the project although setting technical specifications, terms o f reference and qualifications o f prospective contractors would be shared with the relevant departments within IARCSC. With the relevant employing departments, which would supervise the technical performance o f contractors, the PCD would also be the focal point for administering these technical assistance contracts and for compiling and managing payments in liaison with the Finance Department o f the IARCSC, accounting for disbursements o f project funds and for conducting any subsequent component and sub-component procurement. The PCD would prepare project- wide financial reporting from the project accounts maintained in the SDU and be responsible for responding to project audits. They will work closely with the finance department inthis regard. 55. The PCD would also coordinate establishing priorities for selecting the line ministries to be assisted under the promam, with guidance from the PAR Steering Committee. These assessments would include a technical assessment (by the PAR Implementation Department and the HR Department) o f the readiness o f the respective line ministry to undertake further restructuring activities, as well as an assessmento f the value o f improving HR capacity inthe context o f the importance o f the ministry/agency with regardto budget and staffmanagement responsibilities. 56. Component 1 would be managed by the PAR Implementation Department o f the IARCSC. Resources under this component, dedicated for line ministry reform would effectively be passed on to selected line ministries through an agreement between the ministry and the IARCSC. This agreement would set out the level o f resources and assistance that the project would provide to the ministry and the results'expected from the ministry in return. Component 2 would be managed by the Human Resources Policy Department o f the IARCSC. Component 3 activities would effectively be managed by the Administrative Reform Secretariat and the ProgramCoordination Department. Coordination with Other Donors and the Public Financial ManagementProject 57. The project i s being closely coordinated with the efforts o f other donors. The Program Coordination Department o f the IARCSC will facilitate coordination o f donor activities and investments around the Civil Service Implementation Plan. In this regard, it will hold regular program reviews and support the submission o f proposals for funding for additional activities to donors andor ARTF, as required. It will also ensure coordination across technical assistance providers, and along with the A R S , consistency in approach. Several other donors such as EC, DfID, UNDP, USAID and ADB already have funds committed to undertake organizational and institutional reforms within key line ministries, in line with guidance developedunder this project. 58. The project will closely coordinate with the reforms under the PFM project. Support for reorganizing common functions within key line ministries and strengthening the application of HR practices will directly support the efforts within the PFM project to transfer financial management and procurement responsibilities steadily to lineministriesand agencies. 14 ProcurementArrangements 59. With donor assistance, Afghanistan has made considerable efforts to establish the Legal and Regulatory Framework for procurement during the last five years. A new Procurement Law, reflecting best international practice in public procurement, was enacted in November 2005 replacing the earlier Procurement Regulations. The Afghanistan Procurement Regulations and Procedures are awaiting clearance from the Ministryo f Justice and the Cabinet o f Ministers. A Special Procurement Commission will be operational inApril 2007, and will be responsible to review the contract award recommendations for contracts exceeding US$ 500,000. A Manual o f Procedures for Procurement Appeal and Review has been prepared and the system will begin to be operational by April 2007. Afghanistan specific biddinglproposal documents will be prepared by December 2007. Bidding opportunities for all major contracts and the contract awards are published on the ARDS website under the Ministry of Economy. ARDS-PU i s currently issuing the bidding documents to all the potential bidders electronically free o f charge. The above actions will increase the transparency and the confidence ofthe business community. 60. Much still needs to be completed to improve dissemination o f the new Law, Regulations, Procedures and Appeals mechanism throughout government and with the business community. An IDA- funded technical assistance project i s in place to carry out an intensive and extensive capacity building program. Action will be simultaneously taken to develop procurement proficient personnel in line ministries, with an accreditation system. Inaddition, the Government i s seelung opportunities to get civil society involved inproviding oversight inthe adherence to transparency inthe process. 61. Procurement will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" (dated May 2004) and revised in October 2006.; "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" (dated M a y 2004)and revised in October 2006.; and the provisions stipulated in the Financing Agreement. The Bank's Standard Bidding Documents, Requests for Proposals, and Forms o f Consultant Contract will be used. In case o f conflictkontradictionbetween the Bank's procurement procedures and any national rules and regulations, the Bank's procurementprocedureswill take precedence. 62. Most o f the procurement under the project will be for the provision o f technical assistance through firmshndividuals. ARDS-PU will assist IARCSC to carry out procurement o f major consultancies includinghighvalue individual assignments and all goods following ICB/NCB procedures. IARCSC will provide technical inputsinpreparation o f TORs/specifications and take the lead in carrying out technical evaluations. The Director (Finance and Administration) o f IARCSC will be responsible for procurement o f small value goods contracts following Shopping and Direct Contracting procedures. A summary o f procurement methods i s given in Annex IV. The Program Coordination Department (PCD) would be responsible for contract administration, and with the user section, shall monitor compliance with terms o f reference etc. Financia1Management Arrangements. 63. A Public Financial Management (PFM) performance rating system has recently been developed for Afghanistan by the Public Expenditure and Financial Accountability (PEFA) multi-agency partnership program, which includes the World Bank, IMF,EC, and other agencies. Afghanistan's ratings against the PFM performance indicators portray a public sector where financial resources are, by and large, being used for their intended purposes as authorized by a budget that i s processed with transparency and has contributed to aggregate fiscal discipline. 15 64. Financial management and audit functions for the proposed project will be undertaken through the agents contracted under the Public Administration Capacity Building project. This i s the primary instrument for continuing to strengthen the fiduciary measures put inplace for ensuring transparency and accountability o f funds provided by the Bank and other donors. Under these contracts, two advisers- Financial Management and Audit-are responsible for worhng with the government and line ministries to carry out these core functions. The Financial Management Adviser (FMA) i s responsible for helping the M o F maintain the accounts for all public expenditures, including IDA-financed projects and for buildingcapacity within government offices for these functions. 65. At the project level, financial management will be coordinated by the Program Coordination Department (PCD) o f the IARCSC, inliaisonwith the Finance Department o f the IARCSC. 66. A Financial Management Specialist will be recruited at the IARCSC with responsibility for financial management activities o f the project, which will include processing o f consultants and suppliers invoices for payments i.e. preparation o f M-16 forms (payment orders), maintaining relevant accounting records, preparation o f required monthly, quarterly and annual reports, coordination with other component implementing entities to ensure that adequate financial management requirements are met, liaising with SDU to ensure that the Designated Account i s replenished as at when due andbe responsible for responding to project audits. 67. Quarterly Financial Monitoring Reports will be prepared by the IARCSC's accounting unit. Consolidated project reports will be prepared, reviewed, and approved by the MoF, supported by the FMA. A Designated Account (DA), will be opened at Da Afghanistan Bank (DAB, Central Bank). The DA will be maintained by the MoF. Withdrawal applications for replenishment will be submitted monthly. Financialmanagement arrangements for the project are detailed inAnnex V. 68. Fund Flows: Fund management for the Project will follow existing procedures. As with all public expenditures, all payments under the project will be routed through MoF. The FM Adviser will assist the M o F in executing and recording project payments. Inkeeping with current practices for other projects inAfghanistan, the DA will be operated by the Special Disbursement Unit (SDU) inthe Treasury Department, MoF. Requests for payments from DA funds will be made to the SDU by IARCSC. In addition to payments from DA funds, IARCSC can also request the SDU to make direct payments to consultants or consulting firms, and special commitments for contracts covered by letters o f credit. Such requests will follow World Bank procedures. All withdrawal applications to IDA, including replenishment, reimbursement, and direct payment applications, will be prepared and submitted by MoF. 69. Accounting and Reporting: A Financial Management Manual will be prepared by IARCSC documenting the financial management arrangements for the project. The manual will outline guidelines for project activities including specific requirements for each component implementing entity, and establish a project financial management system inaccordance with standard Afghan government policies and procedures. This will include use of the Chart o f Accounts developed by the Treasury to record project expenditure. Project accounts will be consolidated centrally in MoF, through the SDU and supported by the FMA. Consolidated Project Financial Statements will be prepared for all sources and uses o fproject expenditures. 70. Disbursement Method: Disbursements from the IDA grant will be made in accordance with the Bank's Disbursement Handbook for World Bank Clients (May 2006)using advances, reimbursement, direct payment, and payments under Special Commitments including records (source documentation) or against reports (statements o f expenditures), as appropriate. 16 Audit Arrangements 71. The Auditor General, supported by the Audit Agent, i s responsible for auditing the accounts o f all IDA-financed projects. Annual audited project financial statements will be submitted within six months o fthe close o f GOA'Sfiscal year. B. Monitoring and Evaluation 72. Responsibility for assuringthat the results o f the project are achieved would be vested inthe PAR Steering Committee, which reports to the GOA on all matters related to the reform o f public administration. The results framework including component-by-component progress benchmarks is given inAnnex 11. 73. Operationally, the IARCSC has responsibility for developing monitoring and evaluations o f PAR performance that would extend to the project results. It i s also responsible for providing the PAR Steering Committee with diagnosis o f issues, analysis o f options for resolving them, and recommended courses o f action. The IARCSC i s organized to perform this function through its Administration Reform Secretariat (ARS) which reports to the Chairman o f the IARCSC. The ARS includes a Monitoring and Evaluation Department that would conduct the daily work requiredto meet the IARCSC's responsibilities. 74. The ARS/M&E Department is adequately staffed in terms o f numbers and grades o f personnel, and its mandate and lines of reporting are clear. It is, however, operationally weak and inexperienced. It has received assistance in becoming familiar with the concepts and terminology o f monitoring and evaluation, and provided some ad hoc evaluations o f selected issues. It has not, however, conducted a cross-agency exercise o f the type required by the current project (use o f a data collection instrument designed to generate comparable data across agencies; collection and compilation o f other sources o f administrative data and intelligence as part o f a "stock-talung; performing interpretation o f data against expectations and rating results; drawing conclusions and presenting options for bridging gaps between results and expectations). 75. The project itself would provide consultant services to work in the ARS/M&E Department to support three successive annual reviews o f this type. The residual would be templates, tested processes and protocols that could be replicated. 76. The ARS/M&E Department would also collaborate with the Human Resource Management (HRM) Department and the PAR ImplementationDepartment to develop individual methodologies for monitoring their specific results so that these can be readily employed for management as well as annual results monitoring. C. Benefitsand Risks 77. The project will support the Government's efforts to build a solid foundation for a professional, capable and results-oriented civil service. Successful implementation o f the project will provide greater confidence to the Afghan public and donors that, over time, capacity can be built within Afghan institutions to deliver results in an effective and accountable manner. The project, addresses specific weaknesses in the overall management o f the civil service and aims to leverage funds where there i s likely to be maximum retum interms o f management o f resources on the ground. There are significant risksto the project as described below, and summarized inthe table at the bottom o f this section. 17 78. Thefragilepolitical environment i s a major risk factor which poses uncertainties with regardto the ability o f government to stay on course with a difficult reform process. Public administration reform i s inherently a long term process requiring not only changes in formal rules, but also cultural norms and values, which are significantly harder to shift. In Afghanistan, political commitment to the reform process is weak and the overall context -o f fluid political alliances - i s not particularly conducive to successful reform. To partially address these risks, IDA i s assisting the government in further developing its PAR framework which, among other things, will help strengthen accountability and broader understanding ofthe needfor such reforms. 79. Weak oversight and uncoordinated donor behavior has at times undermined objectives. The provision of assistance to the Public Administration Reform agenda has been uncoordinated and o f low quality in the context o f poorly defined reform agendas and coordination mechanisms. Since the Ministerial Advisory Committee stopped meeting inAugust 2005, wider government oversight has been l a c l n g - leading to a sense of vacuum and a perception that little o f substance i s talung place. Donors and government are now coming to agreement on: a common framework for public administration reform; a clear plan for implementing key civil service elements o f this framework; a set o f monitorable indicators to show progress towards the Compact goals, and (eventually) the impact o freforms on service delivery. These factors would provide the basis for a more programmatic allocation o f resources from donors to support government inthis area, possibly funded through ARTF. 80. Some elements of the reform agenda are technically dqficult to undertake. Government has set itself an ambitious timetable for rolling out a new pay and grade structure while wishing to preserve the principles o f administrative reform and merit based appointments underpinning this. There i s a risk that, without due attention to capacity, quality and supportive reforms in the areas o f pensions and severance, these reforms could simply lead to a more expensive government with little improvements in service delivery. To mitigate these risks, Government will (i) carefully sequence reforms (starting with senior levels, establishing first key management functions, and beginning with ministries with a proven capacity to implement reform); and (ii) monitor, evaluate, and communicate about the reform. There are few technical alternatives at this point to addressing the need for a new pay and grade structure. The project provides technical assistance to guide the process and minimize risks inthis regard. 81. Implementation capacity is weak. Capacity to manage a complex andpolitically sensitive reform program i s severely limited. Both the IARCSC and line ministries ability to absorb and implement new reforms i s limited. A review o f options for the evolution o f the IARCSC, in light o f its wide- ranging responsibilities for policy, implementation and monitoring o f reforms, i s being undertaken. In addition, the project will directly support the completion o freforms within the relevant departments inthe IARCSC so they can satisfactorily perform their responsibilities. Other initiatives such as the Management Capacity Program, will provide temporary implementationsupport inkey areas. 18 Table 4: P liect Risks Risk Mitinatinn Factors Weak political commitment to difficult institutional Reliance o n establishment o f rules-based procedures reforms particularly merit based recruitment to limit political interference, use o f independent principles. evaluations and stronger monitoringheporting mechanisms. Challenging technical reforms in weak capacity Few other technical options exist in context o f environment, particularlypay and grading. urgency to reformpay and grade structure. Technical assistance designed to provide maximumsupport to government in technical aspects and integrity of process. Incomplete donor coordination creating reform Donors have agreed to align support to PAR program gaps and inconsistencies Framework and CS Implementation plan. PCD being strengthened to coordinate donor inputs. Weak implementation capacity. Relevant parts o f IARCSC being strengthened to provide facilitation. Line ministries responsible for driving their own reforms with enhanced provision o f technical assistance. Complementary programs - MCP - strengthen implementation capacity in short term. Focus o n core business functions first. D. Grant ConditionsandCovenants 82. Standard requirements covering organization and staffing, management arrangements, provisions for procurement and financial management will suffice. However, receipt by IDA o f evidence o f a Pay and Grade Policy in form and substance satisfactory to IDA, would be a disbursement condition for Sub component 2 (c) o f the Project, related to implementation o fthe Government's pay and grade policy. 83. Inaddition, IARCSC shall, byno later than 31August, 2007, engage the services ofa financial management specialist under terms and conditions satisfactory to the Association to be responsible for overall financial management o f the Project. The IARCSC shall also prepare both an Operations Manual and a FinancialManagement Manual, ina manner satisfactory to IDA, by 31August, 2007. 84. The International Development Association General Conditions for Credits and Grants", dated July 1, 2005 (as amended through October 15, 2006) apply to the project. There are no effectiveness conditions for the project. Standardeffectivenessrequirements under the General Conditions will apply. E. Environmentand Social Safeguards. 86. The Project has been assigned Category "C" for environment. No environmental impacts are expectedto arise as a result o fProject implementation. The Project will not involve any acquisition o f land or displacement o fpopulation. 19 ANNEX I.PROJECTCOST Policy, M&E and 3.2 Communications 1.40 0.10 0.10 1.6 ComponentSub-total 2.90 0.20 0.20 3.3 Total 18.54 0.96 0.90 20.4 Includes internationalandnational consultants. 20 ANNEX 11. RESULTSFRAMEWORK ProjectDevelopmentObjectives ProjectOutcomeIndicators Contribution to GoNCSR Goals Across the time frame o f the 0 The number o f ministries/agencies reporting Maximizes the likelihoodthat project, (by201I), a significant on progresstoward achieving their sectoral the civil service will positively proportion o f key' objectives, and the use o fresources for those contribute to service delivery and ministriedagencies will be purposes. poverty reduction goals through performing their functions to an The proportion o f civil service appointments being organized, managed and acceptable level and can be held based on merit, and level and perception o f monitored towards delivering accountablefor the use o f public integrity inthe recruitment process. results. resources. This will have 0 The consistency o f application o f the Civil resulted from these Service Law and regulations to the ministriedagencies having been management o f civil servants. reorganized according to their The extent to which IARCSCis coordinating core functions and civil servants donor support for civil service reform, and beingmanaged according to regularly monitoring andreporting on the clear rules and procedures. implementation o f the civil servicereform implementation plan. ContributingOutputs Contributing Output Indicators Contribution to PDO Results Agencies implement Number of agenciesimplementingreform Improvingthe organizational organizational reforms per plans based upon a reevaluation o f structure o f agency functions approved reformplansand organizational needs (including at sub- (removing structural redundancy, reportingon progress. national levels) and reporting on progress unclear lines o f authority, made. outdated mandates and inadequatejob descriptions.. .) enables the human capacity o f the civil service to realize its - operational potential. The civil service would perform policies and practices applied restructuring o f HR Departments. efficiently and effectively when consistently across government. Timeliness, quality and consistency o f HR (i) areadequateincentives there New civil service grade and pay procedures within ministries against clearly and compensation relative to structure operational across set standards. non-public service employment, government. Numbers o f staff recruited and retained on (ii)itismanagedundera meritprinciples, and consistencyand transparent regulatory transparency o f the recruitment process with framework, applied consistently the procedures. across the civil service, and (iii) Grade Two and above positions re-graded it is managed through agency- and filled inline with approved pay and specific humanresource grading reform; management units. Grade Three and below positions re-graded and filled inline with approved pay and grading reform. IARCSCexercises effective Completed annual M&Ereviews o f CS Provides the lessons learned to oversight o fthe civil service .reform achievements and identification o f enable continuous improvement reform program. issues and options. as well as accountability to Degree to which CSR Implementation plan is Government and the public. supported and funded by donors. Maximizes use o f donor resources for outcomes, as a result o f close coordination. Determined to be key due to their contributionto service delivery andor economic management objectives within the IANDS 21 4% c I 4 . 3 I I a a 91 I L, ss P d 9 0 d i ." t c ANNEX 111. DESCRIPTIONOF COMPONENTS A. Descriptionof Component1:OrganizationalReformswithin CoreMinistries($8.4m). Background 1. Structuring government organizations to follow their functions has been important in Afghanistan because structures had become very informal during the conflict years. There was little clarity about the functions o f ministries and agencies, and even less about their constituent units. Administrative practices from different legal regimes coexisted, and ad hoc administrative changes had been introduced by some ministries to deliver quick results. There was need to evaluate whether the staffing and supervision structure was consistent with the level o f decision-making and each o f the ministry'sfunctions. Compacttarget andtimeline 2. On this subject the Compact states: By end-2010 the Government machinery will be restructured and rationalized to ensure afiscally sustainable public administration; .....civil servicefunctions will be reformed to reflect corefunctions and responsibilities. Achievementsto date 3. The principle vehicle for restructuring and rationalizing individual government organizations has been the Priority Reform and Restructuring (PRR) Program. Its objective was to stimulate modest, targeted incremental reform o f key functions within government departments and agencies (World Bank, 2004). The PRR process allowed staff o f selected departments o f ministries or entire ministries to be placedon an elevated pay scale for a fixed term in exchange for restructuring. PRR status was granted on the basis o f the quality o f the proposed strategy and the implementation plan. Staff placed on PRR scale hadto have demonstrated a track record o f competence and be recruited through a competitive process. 4. PRR enabled ministries to begin a basic reform process. PRR Stage 2 proposals have been approved for 24 o f 44 ministries/agencies (entire structure) and a further 8 out o f 44 have been partially approved (for key departments) covering approximately 44,000 positions. Over 9000 o f these posts have been filled utilizing competitive merit based procedures including more than 1500at senior levels. 5. This agenda, however, is incomplete. As a result o f a lack o ftime, insufficient internal capacity and insufficient technical assistance, many PRR proposals lacked proper strategic analysis o f key missions and functions o f ministries particularly inrelation to their overall service delivery objectives. Although a "whole o f ministry" approach was adopted around November 2004, restructuring o f functions did not allow for all departments to work as an integrated whole, including those located at provincial and district levels. Inadequate attention to establishing HR departments, meant that recruitment to new positions was not adequately undertaken inthe absence o f staffing plans that specified numbers, job descriptions, grade- levels and qualifications o f staff needed in new structures. Proposals did not specify any monitorable indicators - either o f process or outcomes, and once proposals were prepared most ministries lacked the capability or resources to actually implement reforms. 6. The Government i s now revising its administrative reform framework to take account o f the lessons learned under PRR shifting the focus away from previous asymmetric and department-centeredreforms to more comprehensive refoms involving entire ministries (centre to sub-national) with a stronger focus on monitoring service delivery results. 25 Proposed Assistance. 7. The project will provide technical assistance, training and limited equipment to core ministries as they take charge o f their own reorganization efforts. At the end o f the project period, line ministries, whose reorganization has been supported by this Component, will be functioning systematically according to their own work programs, instead o f undertalung ad hoc activities responding to donor demands. They will be able tojustify to Cabinet and Parliament the use o fpublic and donor resources. 8. The project will support selected core ministries as they take charge o f their own reorganization efforts ina post-PRR environment. A particular focus would be placedon improving the organization and performance o f functions common to all public agencies (including administration, human resource management, financial management and procurement, and ifrelevant, development and administration o f regulations). With the assistance made available through the component, a typical recipient agency would complete the following tasks, through their Reform ImplementationManagement Unit (RIMU). Preparing the ministry's three year strategic program including articulating the specific sectoral deliverables and means o fmonitoring; Consolidating results o f PRR and completing the restructuring o f non PRR'd departments including at subnational levels; Recruiting staff corresponding to the new structure and applying enhanced HR policies and procedures to the ministryas a whole -includingnew grade structures; Identifying funding gaps inthe ministry's strategc plan and obtaining coordinated donor support for those; Producing an annual performance report for Cabinet and Parliament, that specifies progress in achieving results. 9. As a result of these activities, ministries or agencies would have developed a hospitable organizational environment for absorbing specialist functional and sector-specific development assistance. 10. Resources: The grant would finance: Technical assistance to ministries and agencies for specific institutional and organizational improvements. This would be in the form o f a small team of international and locally recruited specialists with competencies in, (i) organization o fpublic sector administration and management (ii)institutional development, (iii) organization of human resource management departments. As organizational structures are developed, the nature o f the technical assistance may change with a need for more specialist inputs to identify service improvement opportunities. Some funds are available for supporting equipment and training. It i s expectedthat the average ministrywould be allocated up to 60 person months o f international technical assistance over a 36 month period and 60 person months o fnationaltechnical assistance costing approximately $2.0 million. The cost o f additional assistance to the IARCSC PAR Implementation Department to guide ministries and agencies, and to provide quality control and consistency between the restructuring efforts being carried out. Competencies would include organization o f public sector administration and management. It i s expected that up to 32 person months o f international and 60 person months o f national technical assistance would be required. These experts may also assist smaller ministries as part o ftheir ministry-specific teams 26 11. Onthis basis, 4-5 ministries could be supported, depending on the level o f effort requiredineach ministry. The specific ministries to be selected will be determined on the basis o f criteria agreed to between IDA and the Government. Sub-component Personmonths; Elapsed Good and Training Estimated Time Services cost (US$) Supportto line ministries. 168(international); $350,000 $300,000 $7.lm 180 (national); 3 years supportto PAR 32 (international) 60 (national) $1.3 Imdementation DeDt Total I I I $8.40 m 1 B. Descriptionof Component2. ImplementationofMeritBasedHumanResourceManagement PoliciesandPracticesinGovernment ($8.7 million) 12. The Civil Service Law, approved by Cabinet inAugust 2005, outlines the structure and functions o f the IARCSC and provides the legal framework for a reformed, merit-based and professionally managed Afghan civil service. Implementationo f the Civil Service Law i s central to the Government's Interim National Development Strategy (I-ANDs) and Compact between the government and international community. Benchmark 2.1.4, although ambitious, i s a target that both the Government and International Community have collectively committedto achieving: 2.1.4: By end-2010, in furtherance of the work of the civil service commission, merit-based appointments, vetting procedures and peformance-based reviews will be undertaken for civil service positions at all levels of government, including central government ... Annual performance-based reviews will be undertakenfor all senior stafl(grade 2 and above) starting by end-2007 13. This component comprises three critical activities: (i)HR policies, procedures and training; (ii) senior appointments andappeals; and (iii) pay and grading reform. SUBCOMPONENT 2.1 HUMAN RESOURCEPOLICIES,PROCEDURESAND TRAINING 14. Regulatory Framework. Technical assistance funded by the ADB and IDA'SSecond Emergency Public Administration Project supported the Human Resources Policy Department (HRPD) to draft priority regulations including Appointments Regulation, Appeals Regulation, Performance Appraisal Regulation and Pay & Grading Regulation. These draft regulations were based upon generally accepted best practice inHR, alignedto meet Afghanistan's specific needs and conditions. They are currently under review by an inter-ministerial committee and are expected to be finalized and submitted for Cabinet approval by the end o f SY 1385 (21 March 2007). 15. Other key regulations, procedures, guidelines, forms etc also need to be drafted including on vetting o f candidates, job classification, promotions, transfers, redeployment and retrenchment, attendance, contract employees, pensions, and termination. Some will require further technical work and policy decisions. Technical assistance will be providedunder the project to support: 0 Preparation o f remaining regulations, guidelines, procedures, forms, executive orders for HR policies inline with the Civil Service Law and preparation of an integrated HRmanual. 27 Establishment and implementation o f a simple monitoring mechanism to review progress on implementationo f key HR policies including at sub-national level. 16. Establishing and Extending HR Policies and Practices to Line Ministries. The implementation o f key HR policies and procedures i s dependent on the effective dissemination o f these policies to qualified staff located inreasonably functioning HR units within line ministries. HR units in Ministries and government agencies have been primarily concerned with personnel administration and record keeping, rather than the management o f human resources within a performance management framework. The Civil Service Law requires Ministries, agencies, provincial and district offices to take on the full range o f human resource management functions, including recruitment, job classification, performance assessment inaddition to basic personnel management processes. A proposed organizational structure for HRunits within line ministrieshas been developed alongwith a training schedule for the estimated 1025 HR staff expected to be needed, plusrelevant line managers, inall aspects o fHRpolicies, procedure and regulations. 17. Assistance under this component will support the HRPD in finalizing a structure and related staffing competencies for HR departments in ministries and agencies. Advice and guidance will be provided to ministries and agencies on the establishment o f the new HR structure identifying where further resources might be needed to support implementation. Once the new HR structure has been established then related training on the new HR policies and procedures can be provided along with any supporting equipment. 18. The earlier training needs assessment for HR staff o fministries and agencies will be updated with assistance under this component, specifying the full program o f HRM training along with the proposed training plan, location, methodology, calendar and budget. It will examine the possibilityo f utilizing the Civil Service Training Institute in conducting the training and having HR management established as a core module o f its program, with specified competencies determined for HRManagers. 19. Once the Government has approved the training needs assessment, technical assistance under this project will coordinate and oversee a sustained program o f training (in conjunction with the Civil Service Training Institute if possible) for the estimated 1000 new HR managers that will be required and 1000 line managers. The earlier training needs assessment suggested a training schedule of 18 days - in six 3 day sessions across two years - would be required to cover all necessary procedures and standards under the Law. The training needs assessment. 20. Information on civil servants. One o f the key tasks o f HR units in ministries should be the collection and maintenance o f a consistent set o f information on employees that could ultimately be centralized and linked to payroll. Bringing consistency into the methodology for collecting employee informationi s becomingurgent inthe context o f implementation o f a new pay and grade reform. 21. IDA'SEPAPI1funded the design o f a simple M S Access database at the IARCSC to inputbasic informationreceivedfrom ministries on current civil servants. However, information on employees is not systematically received and remains inconsistent. A study i s currently being funded through a separate IDA project to devise a new process to ensure consistency across government and provision o f the requiredinformation centrally to IARCSC's Human Resource Policy Department (HRPD). 22. This project will provide limited assistance to the IARCSC to oversee the implementation o f this new process. In parallel, the IARCSC will seek funding from other donors for development and 28 implementation of a fully fledged IT system over time which would support and automate the mechanisms o f HR management. 23. Pensions Reform. The pension system in Afghanistan faces serious financial and operational challenges. Payments are made on an ad hoc basis largely from the central budget, records are paper- based, information technology applications are non-existent, administrative capacity o f current staff i s low and the overall operation is non-transparent. As the pension benefit i s directly related to the last wage, the new pay and grading reform within the civil service may seriously impact outstanding pension liabilities. Significant reforms are required for the establishment o f a modem pensions system. Analytical work by the World Bank suggests the reformwill be limited largely to parametric changes inthe existing provisions. Implementation o f the parametric reform, rationalization o f operations, and upgrading o f infrastructure will require substantive resources and capacity. This project will support technical assistance for up to 12 person months to finalize the pension policy parameters and an action plan to implement a pensionreform and modernizationprogramthroughout government. 24. Strengthening of HRPD. The Human Resources Policy Department (HRPD) is responsible for overseeing the development o f HRpolicies and facilitating their implementation across the Civil Service. However, its capacity i s weak and it is unable to effectively fulfill its functions. A comprehensive functional review under IDA'SEPAP IIwas carried out of the HRPD in February 2006 and provided recommendations on structure, staffing and training. The report also highlighted the need for the development o f a strategic business plan and individual performance targets with progress towards their achievement evaluated on a frequent basis. The project will support the strengthening o f the HRPD in order that it can lead on the critical humanresource management activities under its mandate. 25. In addition, it is important that improvements in HR capacity and practices are monitored and reported on regularly. The project will support the development o f a benchmarking and monitoring system that will permit the HRPD to verify that new HR systems and practices are being properly implemented with due attention to reasonable standards set by the government. SUB-COMPONENT 2.2 SENIOR APPOINTMENTS AND APPEALS 26. Senior Appointments. Senior appointments based on merit i s one o f the Cornerstones o f the Civil Service Reform program in Afghanistan and i s central to strengthening the managerial capacity of the civil service. Inthis regard, an Appointments Board (AB)and an Appeals Board were established inmid- 2003. The Appointments Board identifies and recommends the recruitment, appointment, promotion, transfer, retirements, pension payment and other personal matters o f high-ranking civil servants for the approval o f the President and monitors the appointments in line ministries o f junior positions. The Appeals Board i s responsible for hearing appeals fiom civil servants who consider they have been disciplinedunfairly. 27. Appointments based on patronage, political influence and ethnic preferences were the general and accepted way in which appointments were traditionally made to the Afghan civil service. Against this backdrop, achievements in senior merit-based appointments have been significant. Over 1400 senior appointments have been made and over 7200junior appointments have been monitored by the AB; senior appointments are being made in line with set procedures; several training workshops have been held on criteria-based assessment; and a system for weekly business reporting has been established. 28. There i s a concern regarding the fragility o f some o f the gains made. A World Bank-funded independent assessment o f the senior appointments process was conducted in December 2006. It 29 recommends that greater emphasis now be placed on the quality o f the assessmentprocess rather than the number o f appointments made. In addition, as part o f IDA'S work program on anti corruption, a vulnerability assessment was conducted o f merit based appointments. In line with the recommendations arising from these two reviews, the AB has adopted a comprehensive action plan to buildon the progress to date which it intends to implement over the next three years. Specific improvements relate to: 0 Robust andtransparent procedures at all stages o fthe appointments; 0 On the job mentoring and specific training for AB staff e.g. on interview techniques, criteria- based selection, etc; 0 Establishment o f an internal monitoring mechanism to allow quantitative and qualitative review o f processes and outcomes inmerit-based appointments; Implementationo f a country-wide communication campaign. 29. Improvements in the appointments process are a high priority for the IARCSC. This i s particularly the case gven the backlog it faces in appointments o f around 840 positions and the expected increase o f senior appointments in line with implementation o f pay and grade reform. Technical assistance under the project will support: 0 Implementation o f AB'S Action Plan to improve processes, outcomes and monitoring o f appointments; 0 Development and implementation o f measures to encourage gender equality and ethnic balance inthe senior civilservice; 0 Development and delivery o f a `continuous learning' program for Commissioners, Establishment o f internal monitoring mechanisms (for quantitative and qualitative evaluation o f process and outcome o fmerit-based appointments). 30. Appeals. Since the establishment o f the Appeals Board in mid-2003, procedures have been developed and are being implemented and the Board has received and successfully dealt with 279 appeals. It appears to function well. However, little external assistance has been provided to support the Appeals Board and there i s a need to review these procedures and introduce simple appeals mechanisms at Ministry level given that the expected increase in gnevances with the progressive implementation o f pay and grading reform. Technical assistance will support: 0 Development and implementation o f a performance improvement plan for the Appeals Board and appeals process throughout government, setting specific service standards with regard to timeliness and customer satisfaction; 0 Introduction of a simple appeals mechanism (including structure and guidelines) in individual ministriesand agencies, and regionalIARCSC offices; 0 A simple monitoringmechanism for appeals settled at ministryand sub-national levels; 0 Reporting (preparing regular reports and briefings as required for President, Cabinet Committee on PAR, Cabinet, Administrative Reform Secretariat, donors, etc). SUB-COMPONENT2.3 PAY AND GRADINGREFORM. 31. Afghanistan's civil service pay scales have been unrevised during the conflict years, while a few across the board allowances (mainly food) had lowered the compression ratio to 1.01. The existing 13- grades and corresponding pay scales emphasized longevity rather than competence and responsibility in promotions. The grades were applied randomly and inequitably across ministries for similar functions. 30 32. The government is inthe process o f agreeing on a new grade pay structure. The new pay scale i s designed with an assumed distribution across 8 grades, with new pay scales attached to these grades (with a minimumsalary o f $80 and maximum o f $800). The sequence o f introducing the new pay scales withm Government has been partially identified. Those appointed through merit to the new grades 1 and 2 will be paid first. This will be followed by regrading positions below these managerial grades on a ministry- by-ministrybasis. Complementary policies and processes for severance, early retirement, and pensions linked to the P&G policy would be developed. Suitable good governance processes would be built into the reform for the implementation o f the new P&G system. A comprehensive communications strategy would be developed to informkey stakeholders o f the process and benefits ofthe P&G reforms. 33. Support under the Project.-The project would finance the regrading o f a large segment o f the 280,000 existing public sector non-uniformed employees from the grades that they now hold into new positions with corresponding responsibilities under the 8-gradeh2 pay point system. 34. The project would finance the re-alignment o f positions and incumbents, as rapidly as possible, while respectingtwo conditions: First, thefiscal envelope establishedunder the agreedMTFF which permits a 10%increase inwage bill (attributed to re-grading) inthe current fiscal year- 2007; and 30% increases in the wage bill in each o f the next 3 fiscal years. The current plan is to gwe priority to positions which would become "managerial" under the new system (Levels 1 and 2), which accounts for approximately 6,000 positions. The actual sequencing of ministries and agencies to be re-graded at the levels o f 3 and below would be made by the PAR Steering Committee. Second, to make a successful re-assignment of staff to a newly graded position would require adequatejob descriptions and accountabilities, and qualifications established for each position and credible information on the incumbent. Progress has been made under the PRR in modernizing various ministerial and agencies' organizational structures that has reduced (although not entirely) duplication and organizational anomalies. This effort has producedjob descriptions for about 35,000 positions, including a majority o fjobs ingrades 1 and 2. Many o f these positions (notably those in grades 5 and below) are in "jobs" that are routine (drivers, cleaners, file clerks) that do not have specific sectoral relevance, so that a revisedjob description inone or two ministries could be re-applied to others. 35. The risk o f findinga general pattern o f anomalies among functions and poorjob descriptions may be mitigated through a process o f arbitration when the need arose as well as judicious sequencing o f implementation. Those ministries most advanced on redefining their organizational structure and with good coverage with regard to job descriptions will lead the way. Consultants are currently compiling existing job descriptions (resulting from the PRR program as well as all others) to establish a basis for proceeding with re-grading. 36. The IARCSC has developed a Pay and Grade Team, comprising about 15 national contractors, with some experience injob classification. This team would be mobilized to conduct the bulk o f the re- grading o f positions, particularly those at the levels o f 3 and below, and making recommendations regardingthe re-assignment o f incumbents for managerial decisions. 37. Underthese conditions the sub-component would implementthe followingtasks. 31 i. Communications strategy. The project would finance a public communications and awareness campaign, to be delivered in Dari and Pashto. It would be multi-media in nature (press, radio, pamphlet, presentation), and involve explanatory meetings and dialogue with blocks o f stakeholders to elicit reactions and mobilize support, as well as traditional one-way communication o f messages. (This will be financed from Component 3). ii. Grades2 and above. The project would finance technical assistance to work with a core group o f the IARCSCjob evaluation team to (i) undertake the "paper-to-paper" regrading o f current positions, graded 2 and above, to the corresponding position inthe new grade scheme; (ii) evaluate the probable suitabilitv o f the current incumbent for the newly graded position. This work would include: 0 reviewing job descriptions and qualifications o f all positions in these grades, whether or not they hadbeenpreviously re-assessed for PRRpurposes; 0 identify anomalies in these descriptions and functions (duplication, non-functionality, chronically vacated positions, dubious fine-tuning) that would be referred back to HR and technical experts inthe Commission for review; 0 interview positionholders for validation o f their functions; 0 modify thejob descriptions to matchreality; 0 make a recommendation as to the grade (everyone will be appointed to the floor o f the relevant grade with respect to pay) and 0 based on the interview, evidence o f qualifications, make a recommendation on the suitability o f the incumbent and/or the desirability o f opening this positionto competition. 38. Based on this, a confidential report and recommendation would be submitted to a Technical Oversight Committee organized by the a C S C including representatives o f the Appointments Board, Ministry of Finance, and relevant ministries to assure consistency and transparency. The AI3 and the Commissionwould approve, or not, the recommendations for grading and assignments, which would pass through the PAR Steering Committee and be approved for financing by the Ministry o f Finance. Where vacancies exist or where it i s recommended that a position be reopened for competition, normal AB procedureswould apply. Grades3 and Below. 39. The project would provide technical assistance to develop guidelines for regrading positions at grades three andbelow, and use the Commission's P&G Team, with extra re-enforcement as necessary, to work with HR teams inside individual ministriesto re-grade positions and recommendthe re-assignments or not o f incumbents as set out above. This amounts to implementing a reassignment plan for the ministrywhich looks at more than vacant positions only. The recommendation would be approved by the relevant line Minister, the Commission with AI3 and eventually MoFfor financing. 40. The project will finance: Additional support for a communications campaign (estimated cost $500,000 -currently included under component 3 ) International technical assistance to guide the regrading and assessment of positions and staff at grades 1 and 2 (approximately 54 person months o f international technical assistance and some supplementation o fnational consultants to the P&G team inthe CSC ifnecessary). 32 Internationaltechnical assistance to guide the regrading and reappointment o f positions and staff at grades 3 and below (approximately 48 person months o f international TA plus supplementation o fnational consultants to the P&G team as needed.) 41. Owing to the highly specialized and sensitive nature o f this work, an internationally recognized firm, with experience injob grading, executive search and placement, personnel management, and public communications would be employed to assist the LARCSC P&G Team inimplementingthe program. C. Descriptionof Component3. Oversight andMonitoringofthe PARProgram 42. The IARCSC has the responsibility under the Civil Service Law to "lead, regulate, formulate and - implement structurepolicies of thepublic administration system''(Article 5). Box A3.1: Functionsof the IARCSC Mandate: to `lead, regulate, reform, formulate and implement structure policies o fpublic a b s t r a t i o n system' Civil Service Law, 2005 The M C S C comprises. Civil Service Management develops policies relating to the structure, management and appointment o f civil servants, and monitors their implementation. Civil Service Appointments Board identities and recommends the recruitment, appointment, promotion, transfer, retirements, pensionpayment and other personal matters o f high-ranking civil servants for the approval o f the President and monitors the appointments inline ministries o f junior positions. Civil ServiceAppeals Board i s responsible for hearing appeals from civil servants who consider they have been disciplined unfairly. AdministrativeReform Secretariat develops policy relating to public administration reform, communicates this across government and to the public and monitors the implementation o f administrative reformprograms, projects and activities. 33 Achievements 43. The IARCC has made progress in overseeing several important elements o f the public administration reform effort. It has led the PRR effort across government, the introduction o fmerit-based appointments through the AB, designed grading reform to be implemented across the civil service, and ledthe design o fnew PAR strategy. 44. While having the responsibility for overall management o f the public administration reform program, the IARCSC has not demonstrated a well-managed approach to some functions such as monitoring, policy development and coordination o f assistance from donors. In spite o f being the focal point ofthe PRR, slow improvement inmeeting its own PRR Stage 2 standards lowers its credibility. Supportprovided under the Grant 45. This component would include two sets o f actions supporting the Commission's role in (i) PAR program coordination and development in order to manage multiple sources o f donor support, and coordinating resource flows to projects, and (ii) Monitoring and Evaluation, and Communication through the Administrative Reform Secretariat. (a) Program Coordination and Development. The PAR framework and Civil Service (CS) implementationplan provide an opportunity for greater coordination o f donor support. Based on the CS implementation plan the Program Coordination Department (PCD) will translate the priority needs into actionable investment programs that could be submitted to ARTF or other sources for funding. With respect to IDA and other donor financed projects, the PCD would also ensure coordination across technical assistance providers as well as adherence to grant agreement requirements. (b) Monitoring and Evaluation, Policy and Communications. The absence o f M&E has been a constraint to the effective implementation o f public admin reforms. The I-ANDs benchmarks and CS implementation plan provide guidance for monitoring developments in organizational structures, human resource management practices and the IARCSC's oversight o f the Civil Service. Over time this will needto be expanded to include other elements o f the PAR Agenda. The government i s now adopting a set o f actionable indicators to measure progress with regard to implementing the Civil Service program and more importantly to monitor progress over time inmeetingthe Compact targets. 46. The Administrative Reform Secretariat (ARS) in the IARCSC needs to develop the capacity to periodically monitor and evaluate progress in this regard, identify operational issues and lessons learned, support informed decision malung and identify any necessary areas where changes in strategic direction are required. The M&E should be used to builda stronger understanding by political representatives and senior officials o f PAR and the role o f civil service reform therein, which help to build ownership and buy in.A process ofreviewsand clear communicationwill needto engage informdifferent stakeholders such decision makers, donors, political representatives, media and citizens. The ARS will need to support evidence based M&E and decision making, with a clear communication strategy and outreach, to policy makers and key stakeholders. 47. The grantwould finance: 0 Support to the ARS in monitoring and evaluation, policy development and communications strategy and implementation. 0 Support to the PCD in donor relations and program design, coordination, implementation and financing; 34 48. The total cost of this support wouldbe about US$3.3 million Sub-component Personmonths; ElapsedTime Good and Training Estimated Services cost (US$) ProgramCoordination 56 (international); 3 years $100,000 $100,000 $1.7m Policy, M&E, 38 (international); 3 years $100,000 $100,000 $1.6 m Communications 60 (National), 3 years Total $3311 35 ANNEX IV: PROCURMENTARRANGEMENTS A. Country Context 1. The Bank has gained substantial experience and understanding o f the procurement environment in Afghanistan through its involvement in the interim procurement arrangements put in place through Emergency Public Administration Project (EPAP) as well as with the institutions such as Afghanistan Reconstruction and Development Services (ARDS) that i s holding the current responsibility for government's procurement administration. As part o f the broader review o f Afghanistan's Public Finance Management (PFM) system, the Bank recently carried out an assessment o f the procurement environment inthe country based onthe baseline and performance indicators developed by a group of institutionsled by the World Bank and Organization for Economic Co-operation and Development (0ECD)Development Assistance Committee (DAC). 2. The first key issue identified through the procurement assessmentwas the need for ownership and a champion in the Government for reform, deepening o f capacity, ensuring integnty in the operation o f procurement systems, and promoting sound procurement among ministries. 3. A new Procurement Law has been adopted inNovember 2005 which radically transforms the legal and regulatory framework for the procurement administration o f Afghanistan. While it provides a very modem legal system for procurement, effective implementation o f the law may encounter difficulties in the current weak institutional structure and capacity o f the Government. A Procurement Policy Unit (PPU) has now been established under MoF to ensure implementationthrough the creation o f secondary legislation, standard bidding documents, provision o f advice and creation o f the necessary information systems for advertising and data collection. "Afghanistan Procurement Regulations'' have been prepared under two sections :(i) Regulations; and (ii) Procedures and under review by the Ministry o f Justice prior to submission to the Cabinet o f Ministers. Procedures for Procurement Appeal and Review have been developed by PPUMoF and the nominated members will be appointed for the system to be functional by April 2007. 4. In the absence of adequate capacity to manage procurement activities effectively, some interim arrangements have been put in place to improve the procurement management o f the country. A central procurement facilitation service, ARDS has been established under the supervision o f Ministry of Economy. The Bank andthe Government has agreed on a program for country wide procurement reform and capacity building, leading to the transition from centralized to decentralized procurement services. The Bank funded Public Administration Capacity BuildingProject (PACBP) is the primary instrument for implementing the program to strengthen capacity o f the line ministries to manage public procurement in an effective, transparent and accountable manner. However, the implementation o f the procurement capacity building strategy has not made any significant progress yet due to lack o f coordination and delays in decision malung within the Government. The envisaged radical changes to the procurement management environment expected from the new L a w also require the urgent implementation o f a comprehensive human resources and capacity deveIopment program. The implementation o f the procurement reform component o f the PACBP and the proposed Public Financial Management Reform Project should be considered with due priority to ensure that fiduciary standards are further enhanced and that capacity i s developed inthe Government to maintainthese standards. 36 B. ProcurementOverview General 5. The Procurement administration o f the project would be camed out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated M a y 2004 and revised in October 2006, "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004 and revised in October 2006, and the provisions stipulated in the Financing Agreement. The general description o f various procurements under different expenditure categories are described below. For each contract to be financed by the Grant the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame agreed between the Grant Recipient and the Bank project team are described inthe Procurement Plan. This Procurement Plan will be updated at least annually or at lesser time intervals as required to reflect the actual project implementation needs and improvements inthe institutional capacity. 6. Specific procurement procedures including: defining TORs/technical specifications; preparing RFPs/bid/ documents; managing the bidding process including SBDs and evaluation procedures; verification mechanisms for receipt o f goods and completion o f assignments by consultants; contract administration; and payment procedures will be outlined in a Project Operations Manual, to be completed by August 31,2007. 7. Procurement o f Goods: Goods procured under this project would include office furniture, office equipment such as computers and accessories, photocopiers, fax machines, software, communication equipment etc. for IARCSC and its regional offices and the provincial governor's offices involved inthe project for implementation o f the project activities. Owingto the small number and scale o f requirements, ICB would not be an efficient procurement mechanism. All goods would be procured locally following NCB procedures using SBDs agreed for the procurement o f goods for Afghanistan portfolio or "shopping", when the estimated costs of each contract is less than USD 25,000. Computer software and other goods meeting the requirements o f paragraph 3.6 o f Bank's Procurement Guidelines will be procured following Direct Contractingprocedures with prior approval o fIDA independent o f value. 8. Staff Development: The Grant will finance several study tours and incountry workshops. 9. Selection o f Consultants: Major Technical Assistance contracts to be financed under the grant are: (i) Organizational Reformwithin government ministries inAfghanistan ;(ii) Support Merit Based Human Resource Management (iii) Implementation o f Pay and Grade Reforms; (iv) PAR Oversight M&E assignment. In addition there will be several long term national TA inputs. Short lists o f consultants (firms) for services estimated to cost less than $ 100,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. For services exceeding US$200,000 or more QBS/QCBS shall be used as appropriately and for services estimated to cost less than US$ 200,000, QCBS, CQS, Least Cost Selection, Fixed Budget Selection may be used. There will be several long term large value contracts for national individual consultants. Such selection shall be in accordance with Section V o f Bank's Guidelines for Selection o f Consultants. Single Source Selection o f Consultants for firms and individuals would be allowed with prior agreement with IDA. C. Assessment ofthe Agency's Capacityto ImplementProcurement 10. IARCSC have very limited experience in procurement under Bank financed projects. The experience i s mainly inthe selection o f consultants. IARCSC i s carrying out small value procurement o f goods and services. There is an administration officer and procurement assistant to take procurement 37 actions inIARCSC. They are responsible to the Director (Finance and Administration), who has authority to approve contract awards up to a value o f A F s 200,000 (US$ 4,000 equivalent). Contract award recommendations up to a value o f A F s 500,000 (US$ 10,000) can be approved by the Secretary o f the Reform Secretariat and awards up to US$ 500,000 will be the responsibility o f the Chairman IARCSC. As per the Procurement Law all contracts above US$ 500,000 needs the approval o f the Special Procurement Commission under the Ministry o f Finance. 11. Currently IARCSC i s assisted by the Procurement Unit (PU) o f the Afghanistan Reconstruction and Development Services (ARDS) o f the Ministry o f Economy to: (i) prepare and invite EOIs based on the information provided by IARCSC; (ii) prepare RFPs based on the TORs submitted by IARCSC; (iii) guide to submit evaluation reports (in the formats acceptable to IDA) to the donors including IDA upon completion o f evaluation by IARCSC staff; (iv) prepare contract documents in respect o f large value consultancy contracts o f firms and individuals. 12. A R D S o f MOE has sufficient experience in Selection o f Consultants under Bank financed projects and they are currently supported by an international TA until December 2007. Once the consultant's are inplace, the ProgramCoordinationDepartment (PCD) would administer the contracts. 13. Inrespect ofprocurement ofsmall value goods and individual consultants, IARCSC willneedthe support o f a competent procurement officer to prepare bidpackages and evaluation reports with technical inputs from the respective end users. IARCSC has agreed to have a nationalprocurement officer inplace by July 31,2007. IDAhas assisted inpreparation o f the TOR for the proposed assignment which will be financed under the LEP. 1 14. The following actions have been agreed with IARCSC to mitigate the risks: 0 Procurement documentation for large value consultancy contracts shall be carried out by the A R D S - PU o f the Ministry o f Economy, with technical inputs such as TORs and evaluation support from IARCSC; 0 Director (Finance & Administration) o f IARCSC shall recruit a competent procurement officer to support and build capacity within IARCSC for small value procurement actions and selection o f individualconsultants; IDA will conduct a capacity buildingprogramon Selectionof Consultants for IARCSC staff. 15. With the above mentioned procurement risk mitigation measures, the overall project risk for procurement i s medium. D. ProcurementPlan 16. The Grantee, at the appraisal stage, developed a Procurement Plan (below) for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Grantee and the Project Team on April 2, 2007 and i s available at the Office o f the Chairman, IARCSC, Shah Mohamood Khan Ghazi Watt (opposite Ministry o f Foreign Affairs), Sidarath Compound, Kabul, Afghanistan. It will also be available in the Project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementationneeds and improvements ininstitutional capacity. E. FrequencyofProcurementSupervision 17. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o fthe ImplementingAgency recommends two supervision missions inevery eighteen months. 38 ATTACHMENT I I. DETAILSOFTHEPROCUREMENTARRANGEMENTS INVOLVINGINTERNATIONAL COMPETITION (a) Goods and Works and Non-Consulting Services 1 2 3 4 5 6 7 8 9 Ref. No. Contract Estimated Procure- P-Q Domestic Review Expected Comments @escript Cost ment Preference by Bank Bid- -ion) Method (yedno) (Prior / Opening Post) Date July 2007 CSR-G4 Software 0.02 Dc No No Yes (b) Consulting Services i)ListofConsultingAssignmentswithshort-listofinternationalfirms: 1 2 3 4 < I h I 7 I I Review 1 Expected IComments I Cost in US$ m I Method CSR-I Support Organizational Reformwithin 7.33 QBS government ministries inAfghanistan CSR-2 Support MeritBased HumanResource 3.96 QBS Prior July 2007 Management CSR-3 Implementation of Pay and Grade 3.40 QBS ~~ Reforms CSR-4 PAR Oversight/M&E 2.85 QBS Prior July 2007 11. GENERAL (a) Project information: Country: Islamic Republic o f Afghanistan Recipient: Civil Service Commission Project Name: Civil Service Reform Grant No.: Project ImplementingAgency (PIA): Civil Service Commission (b) Bank's approvalDate of the procurementPlan [Original April 2,2007,] (c) Date of GeneralProcurement Notice: December 21,2006 (d) Period covered by this procurement plan: Eighteen Months 39 In. GOODS WORKS ANDNON-CONSULTING AND SERVICES (a) Prior Review Threshold:Procurement Decisions subject to Prior Review by the Bank as stated inAppendix 1to the Guidelines for Procurement: Thresholds for applicable procurement methods (not limitedto the list below) will be determined by the Procurement Specialist Procurement Accredited Staff based on the assessment o fthe implementing agency's capacity. I I ProcurementMethod 1 PriorReview I Comment I 1. IICB (Goods) AllI 2. NCB (Goods) 100,000 3 NCB (Non-Consultant Services) All 4 Direct Contracting All (b) Referenceto ProjectOperationaVProcurement Manual:A Project Operational Manual shall bepreparedand agreedwith IDA. (c) Any Other SpecialProcurementArrangements (d) ProcurementPackageswith Methodsand Time Schedule Listthe Packages whichrequire Bank's prior review first andthenthe other packages] 1 2 3 4 5 6 7 Ref. No. Contract I Estimated 1 Procure- I Pre- 1 Domestic I Review (Descript- qualification Preference by Bank Bid- ion) 1 I ;::id (yeslno) beslno) (Prior I Post) I CSR-G-1 Computers I 0.2 I NCBIShoppi INo No Prior and contract accessories several ng CSR-G-2 August 2007 I I CSR G- Office Shopping August 03 equipment (several packages ) 2007 CSR-G- Software 0.02 DC No N o Yes August 04 2007 40 Iv. SELECTION OF CONSULTANTS Selection Method Prior Review Comment Threshold 1. CompetitiveMethods (Firms) 100,000 2. Individuals 50,000 3 SingleSource (FirmsAndividuals) All (b) Short list comprising entirely of national consultants: Short list o f consultants for services, estimatedto cost less than $ 100,000 equivalent per contract, may comprise entirely o fnational consultants inaccordance with the provisions o fparagraph 2.7 ofthe Consultant Guidelines. (c) Any Other Special Selection Arrangements: [including advance procurement and retroactive financing, ifapplicable] (4 Consultancy Assignments with Selection Methods and Time Schedule 1 2 3 4 5 6 7 Ref. No. Descriptionof Estimated Selection Review Expected Comments Assignment Costin US$m Method by Bank Proposals (Prior / Post) Submission Date CSR-1 support 7.33 QBS Prior July, 2007 Organizational Reformwithin government ministries in Afghanistan CSR-2 Support MeritBased 3.96 QBS HumanResource Management CSR-3 Implementationof 3.40 QBS Prior July, 2007 Payand Grade Reforms CSR-4 PAR Oversight/.M&E I 2.10 QBS Prior July, 2007 CSR -5 PAR Institutional 0.18 I Indv. Prior July, 2007 CSR-6 Institutional 0.16 I Indv. Prior July, 2007 Specialist(3) CSR-7 HR Specialist (legal) I 0.04 I Indv. July, 2007 CSR- 8 Prior CSR -9 HR Specialist 0.04 I Indv July, 2007 (Appeals) CSR-IO DatabaseManager 0.06 Indv. Prior July, 2007 CSR-I1 Communications 0.05 Indv. Prior July, 2007 Specialist CSR- Re-grading specialist 0.22 Indv. L Prior July, 2007 12 5 posts CSR-13 M&E specialist 0.05 Indv. Prior Jul ,2007 CSR-14 Financial 0.37 Indv. Prior Dec, 2007 Management Specialist CSR-15 Procurement 0.37 Indv. Prior Dec, 2007 Specialist 41 v. IMPLEMENTING AGENCYCAPACITY BUILDINGACTIVITIES WITH TIME SCHEDULE (a) Inthis sectionthe agreed CapacityBuildingActivities. Inadditionto the programconductedby IDA for IARCSC staff, it isproposedthat staffinvolved inthe procurement activities o fthe grant be nominatedto participate at training programs for Procurement Law/Regulations/Procedures/goods/works and consulting services conducted by the consultant hired for Capacity BuildingAssignment under the MoFPPU. No. Expectedoutcome/ Estimated Estimated Proposed Activity Description Duration StartDate Participation 1 ProcurementWorkshop: General 1 days May2007 IARCSC Introduction 2 ProcurementWorkshop: Selection 1 day May2007 IARCSC of Consultants (b) Agreed Proceduresfor National CompetitiveBidding In order to ensure economy, efficiency, transparency and broad consistency with the provisions of Section Io f the Procurement Guidelines, the following criteria shall be followed in procurement under National Competitive Biddingprocedures: i. StandardbiddingdocumentsapprovedbytheWorldBankshallbeused. ii. Invitationstobidshallbeadvertisedinatleastone(1)widelycirculatednationaldaily newspaper and biddingdocuments shall be made available to prospective bidders, at least twenty eight (28) days prior to the deadline for the submission o fbids. ... 111. Bidsshall not be invitedon the basis o fpercentage premium or discount over the estimated cost. iv. Biddingdocuments shall be made available, by mail or inperson, to all who are willingto pay the requiredfee. v. Foreignbidders shall not be precluded from bidding. vi. Qualification criteria (incase pre-qualifications were not carried out) shall be stated on the biddingdocuments, and ifaregistration process is required, a foreign firm determined to be the lowest evaluatedbidder shall be given reasonable opportunity o fregistering, without any hindrance. vii. Biddersmaydeliver bids, at their option, either inpersonor bycourier serviceorbymail. viii. All bidders shall provide bidsecurity as indicated inthe biddingdocuments. A bidder's bid security shall apply only to a specific bid. ix. Bidsshallbe opened inpublic inone place preferably immediately, butno later than one hour, after the deadline for submission ofbids. x. Evaluationof bids shall be made in strict adherence to the criteria disclosed inthe bidding documents, ina format, and within the specified period, agreed with the Association. 42 xi. Bids shall not berejectedmerely on the basis ofa comparison withan officialestimate without the prior concurrence o fthe World Bank. xii. Split award or lottery inaward o f contracts shall not be carried out. When two (2) or more bidders quote the sameprice, an investigationshall be made to determine any evidence o f collusion, following which: (A) ifcollusion is determined, the parties involved shall be disqualifiedand the award shall thenbe made to the next lowest evaluated and qualified bidder; and (B) ifno evidence o f collusion can be confirmed, then fresh bids shall be invited after receiving the concurrence o fthe World Bank; xiii. Contracts shall be awardedto the lowest evaluatedbidders withinthe initialperiod o fbid validity so that extensions are not necessary. Extension o f bidvalidity may be sought only under exceptional circumstances. xiv. Extensiono fbidvalidity shallnotbe allowedwithout the prior concurrence o fthe World Bank (A) for the first request for extension ifit i s longer than eight (8) weeks, and (B) for all subsequent requests for extensions irrespective o f the period. xv. Negotiations shall notbe allowed with the lowest evaluated or any other bidders. xvi. Re-bidding shallnotbe carried out withoutthe World Bank's prior concurrence; and xvii. All contractors or suppliers shall provideperformance security as indicatedinthe contract documents. A contractor's or a supplier's performance security shall apply to a specific contract under w h c h it was furnished 43 ANNEX V: FINANCIALMANAGEMENTAND DISBURSEMENT ARRANGEMENTS 1. The Bank has gained substantial experience and understanding o f the financial management environment inAfghanistan throughthe large number o fprojects under implementationover the past four years. The Public Administration Capacity Building Project (PACBP) i s the primary instrument to continue and enhance the fiduciary measures put in place during the past years to help ensure transparency and accountability for the fundingprovidedby the Bank and other donors. 2. A PFMperformance rating system using28 high-level indicators that was developed by the Public Expenditure and Financial Accountability (PEFA) multi-agency partnership program was applied in Afghanistan in June 2005. PEFA i s comprised o f the World Bank, IMF, EC, and several other agencies. The system is structured around six core dimensions o f PFM performance: i)budget credibility, ii) comprehensiveness and transparency, iii)policy-based budgeting, iv) predictability and control inbudget execution, v) accounting, recording, and reporting, and vi) external scrutiny and audit. Afghanistan's ratings against the PFM performance indicators generally portray a public sector where financial resources are, by and large, beingused for their intended purposes. This has been accomplished with very high levels o f support from international firms; this assistance will continue to be needed over the medium term ifthese ratings are to be maintained. There i s also muchroom for improvement. 3. Despite undeniable gains inreconstruction since the end o f 2001, the challenges facing Afghanistan remain immense; not least because o f the tenuous security situation and continued prevalence o f a large illegal and illicit economy. The policy framework benchmarks have not yet been fully costed so various priorities are funded through the annual budgeting process. The rising costs o f the security sector constitute the major constraint on attainment o f fiscal sustainability. With regard to executive oversight, the national assembly will play an increasingly active role. All inall, the new national strategy has created highexpectations ofthe executive which couldprove to be quite difficult to meet. 4. The public sector, in spite o f considerable efforts to reform its core functions, remains extremely weak outside o f Kabul. The lack o f qualified staff in the civil service and delays in reforming the pay structure and grading has severely hampered public administration. Domestic revenues lag behind expenditures by a factor o f ten to one. Large-scale corruption could emerge to undermine the government's efforts to enhance aid flows through national accounts. Capacities to track expenditures and monitor expenditure outcomes have improved, but they need rapid and substantial strengthening if progress toward the attainment o f national development targets i s to be monitored. Currently, 75% o f external revenues bypass government appropriation systems. 5. IDA is financing a Financial Management Advisor to assist the Ministry o f Finance, an Audit Advisor to assist the Control and Audit Office, and a Procurement Advisor to assist in Procurement- related activities. Also an Internal Audit function i s being developed within the Ministry o f Finance with World Bank financing. USAID, and earlier the Indian Aid Assistance Program, is financing a team o f consultants and advisors to assist D a Afghanistan Bank in local as well as foreign currency operations. The activities carried out under the existing Public Administration projects have helped the Government to ensure that appropriate fiduciary standards are maintained for public expenditures, including those supportedby the Bank and the donor community. 6. Progress has been slower than expected in shifting from operations support provided by the three Advisors to capacity development and knowledge transfer to the civil servants. It i s expected that the Advisors will continue to be requiredfor the medium tern. Challenges still remain inattaining the agreed 44 upon fiduciary standards and also to further enhance them. Additionally, the regulatory environment in Afghanistan has advanced significantly in the past three years, while the mastery o f basic shlls does not fully qualify civil servants to work effectively inthe new emerging environment. Risk Assessment andMitigation 7. The table below identifies the key risks that the project may face and indicates how these risks are to be addressed. Risk Risk RiskMitigationMeasures Residual Condition of Rating Risk negotiations, Board or Effectiveness CountryInherentRisk M Source - PFM study M N ProiectFinancial 1 H IIMinimize use ofDesignated 1 s t N I ManagementRisk I Account, maximizedirect payments to consultants; all procurement PerceivedCorruption H I Governmentcommitment, internal I S N controlsandnew internalaudit will helpto reducethehigh level of perceived corruption OverallInherent Risk H S I I I I CONTROL RISK Weak Implementing H A FinancialManagementSpecialist S Y Entity will berecruitedspecificallyfor the Disbursement IndependentAdministrativeReform andCivil ServiceCommission (IARCSC) to take responsibilityof the projectFMactivities. The capacity of IARCSC would be strengthenedwith the presence of internationallyrecruitedadvisors FundsFlow Paymentswill bemadeto M N consultants, Suppliers, etc. from the DesignatedAccount (DA) by SDU- MoF. Inadditionto paymentsout of DA funds, the implementingentities can also requestthe SDUto makei) directpaymentsfrom the Credit Account to consultantsor consulting firms, andii)specialcommitments for contractscoveredby letters of credit. These paymentswould only be madeby SDUafter due processes andproper authorizationfromthe respectivecomponentimplementing entities. Budgeting A budgetcommittee will be M N appointedto coordinate the preparationof annualwork planand the derivationofannualbudgetthere from.Representativesfrom IARCSC, ProgramCoordination 45 i Risk I Risk RiskMitigationMeasures - IResidualI Conditionof Rating I negotiations, Risk 1 Boardor Effectiveness Committeeandeachcomponent implementingentity shallconstitute this committee, andit shallreportto AccountingPoliciesand S Will follow internationalstandards. I M Y Procedures Projectaccountingproceduresand Disbursement details ofthe FMarrangements will be documentedin anFMManualto InternalAudit H Newly-createdinternalaudit S N deparkent will reviewproject I I ExternalAudit H Will beauditedby CAO with S N ReportingandMonitoring H Strengtheningthe SDUis apriority I S Y under thenew FMAdvisor contract, Negotiations to provideinformationthat will complywith agreedformat of financialreports. OVERALL H CONTROLRISK I Detection Risk S Adequate accounting, recording, and M N oversight will beprovidedinproject procedures. Accountinflecordingoversight by SDU-MoF ofall advanceshl-16 supportedby FinancialManagement Advisor. Strengths and Weaknesses Strengths 8. The Government provides assurance to the Bank and other donors that the measures in place to ensure appropriate utilizationo f funds will not be circumvented. Government support for the PACBP i s a strength in itself to enhance financial management in Treasury operations, public procurement, internal audit inthe public sector, andexternal audit by the Auditor General. This i s the second IDA-funded grant for the IARCSC so the agency has experience in implementing Bank projects and following Bank procedures. Weaknessesand Action Plan 9. The main weakness inthis project, as inmany others inAfghanistan, is the ability to attract suitably qualified and experienced counterpart staff especially for Financial Management. The additional staff to be funded by the project, together with intensive training programs included inthis project, i s expected to strengthen the fiduciary arrangements. 46 Significant Action ResponsableAgent Completion Weaknesses Date Shortage o f qualified Appointment o f an F M S in IARCSC August 31, and experiencedFMstaff IARCSC. 12007 Weak FMskills and capacity for all project staff assigned to disbursement expenditure control, and financial recording andreporting activities at each component implementing entity Project internal controls and Financial Management Manual IARCSC August 31, procedures need to be defined developed 2007 Interim reports need to include Un-audited interim financial IDAIMoFIIARCSCI Before required information report formats confirmed DBER negotiations Implementing Entity 10. The project would be implemented under the authority o f the Independent Administrative Reform and Civil Service Commission (IARCSC). The responsibility would be delegated to the Chairman o f the IARCSC. Oversight o f the program would be provided by the PAR Steering Committee comprising senior representatives o f the IARCSC, the Ministry o f Finance, the Office o f the President and other ministries as required, to maintain focus on results, good communications and a consolidated view o f the program and to discuss and recommend any necessary policy and regulatory improvements. 11. Coordination o f the various activities under the project would be the responsibility o f the Program Coordination Department (PCD). The specific role o f the PCD would be to plan, coordinate, and monitor, in liaison with the ARS, the overall project work program and the achievement o f its intended results. Itwould be responsible for ensuring that all requirements under the grant agreement are met with regardto timely reporting andprogress monitoring. 12. The PAR Steering Committee will convene at least every quarter to review progress with implementation and review and approve work plans and budget. 13. The Financial Management Specialist to be recruited at IARCSC will take responsibility for financial management activities o f the project, which will include processing o f consultants and suppliers invoices for payments i.e. preparation o f M-16 forms (payment orders), maintaining relevant accounting records, preparation o f required monthly, quarterly and annual reports, coordination with other component implementing entities to ensure that adequate financial management requirements are met, liaising with SDU to ensure that the DesignatedAccount i s replenished as at when due and be responsible for responding to project audits. Budgeting 14. A budget committee will be appointed to coordinate the preparation o f annual work plans and the derivation o f annual budgets. This committee will be made up o f representatives from IARCSC, Program Coordination Department (PCD), PAR Steering Committee and each component implementing entity, and it shall report to the PAR Steering Committee through the Chairman o f IARCSC. The Budget Committee shall also coordinate quarterly budget reviews to ensure adequate budget discipline and control. The committee will be responsible for ensuring that project expenditures for each fiscal year are captured in the Governmental Development budget o f that fiscal year. The IARCSC must get approvals 47 from the presidential office and the parliament and attach them to B27 and PCS forms at the time o f requestingyearly allotments for contracts under the project to avoid delays inpaymentprocessing. Funds Flow 15. The standard funds flow mechanism in Afghanistan will be followed in this project. Project funds will be deposited in the Designated Account @A) to be opened and maintained at the Da Afghanistan Bank (DaB) or in a local commercial bank, if approved. The DAYin keeping with current practices for other projects in Afghanistan, will be operated by the Special Disbursement Unit (SDU) in the Treasury Department o f MoF. Requests for payments from the DA will be made to the SDU by the implementing entity when needed. 16. In addition to payments out o f DA funds, the implementing entities can also request the SDU to make i)direct payments from the Grant Account to consultants or consulting firms, and ii)special commitments for contracts covered by letters o f credit. These payments will follow World Bank procedures. All project payments will be made to either international firms or local firms that have bank accounts inDaB, a local commercial bank, or an overseas bank. All payments will be made either through bank transfers into the account o f such firms or by check. Expenditures for each component will be paid - centrally from the IARCSC in accordance with the approval mechanisms documented in the project FM Manual. Figure AS. 1: FundsFlow Chart Direct Payments to Consultants, etc. after approval of W.A initiatedby i the project and submitted through SDU Designated Account in DABdenominatedinUSD u Project transactions processed throughSDU and paid inU S D or Afghanis Payment Payment Requests Requests IARCSC 48 Legal requirementsfor authorizedsignature 17. Ministry o f Finance has authorization to disburse funds from the Grant. Specimen signatures of authorized signatories inM o F will be submitted to the Bank prior to commencing disbursements. Accounting 18. The SDU will maintain a proper accounting system o f all expenditures incurred along with supporting documents to enable IDA to verify these expenditures. The FM staff o f IARCSC will: i) supervise preparation o f supporting documents for expenditures, ii)prepare payment orders (Form M16), iii)obtainapprovalforM-16sbytheMinisterorDeputyMinisterdependingonthepaymentamount,and iv) submit them to the Treasury Department inMoF for verification and payment. Whilst original copies o f required supporting documents are attached to the Form M16, the project i s required to make and keep photocopies o f these documents for records retention purposes. The FM Advisor in the MoF/SDU will use the government's computerized accounting system, AFMIS, for reporting, generating relevant financial statements, and exercising controls. 19. IARCSC FM staff will maintain essential project transaction records using Excel spreadsheets and generate requiredmonthly, quarterly, and annual reports. 20. The FMManual, to be prepared by IARCSC and approved by the Bank, will include: i)roles and responsibilities for all FM staff, ii)documentation and approval procedures for payments and release o f funds to each implementing entity involved in the project, iii)project reporting requirements, and iv) quality assurance measures to help ensure that adequate internal controls and procedures are inplace and are being followed. 21. The FM Manual will also establish project financial management in accordance with standard Afghan government policies and procedures includinguse o fthe government Chart o f Accounts to record project expenditures. The use o f these procedures will enable adequate recording and reporting o f project expenditures. Overall project accounts will be maintained centrally in SDU, which will be ultimately responsible for recording o f all project expenditures and receipts inthe Government's accounting system. Reconciliation o f project expenditure records with MoF records will be carried out monthly by the assigned FMstaff inIARCSC. Internal Control & Internal Auditing 22. Project-specific internal control procedures for requests and approval o f funds will be described in the FM Manual to be developed before disbursements begin including segregation of duties, documentation reviews, physical asset control, and cash handling and management. Adequate procedures, guidelines, and controls on payments to implementing entities involved in the project will also be included inthe FMManual. 23. The FMS in IARCSC will be responsible for coordinating FM activities o f the project with the SDU. 24. Annual project financial statements will be prepared by SDU/MoF detailing activities pertaining to the project as separate line items with adequate details to reflect the details o f expenditures within each component. 49 25. The project financial management systems will be subject to review by the newly-established internal audit directorate o f the MoF, according to programs to be determined by the Director o f Internal Audit usingarisk-based approach. ExternalAudit 26. The project accounts will be audited by the Auditor General, with the support o f the Audit Advisor, with terms o f reference satisfactory to the Association. The audit o f the project accounts will include an assessment o f the: (a) adequacy o f the accounting and internal control systems; (b) ability to maintain adequate documentation for transactions; and (c) eligibility o f incurred expenditures for Association financing. The audited annual project financial statements will be submitted within six months o f the close o f fiscal year. All agencies involved in implementation and maintaining records o f expenditures would need to retainthese as per the IDA records retentionpolicy. 27. The following audit reports will be monitored each year inthe Audit Reports Compliance System . (ARCS): Responsible Agency Audit Auditors Date MoF, supportedby SOE, ProjectAccounts and Auditor General Sep 22 SpecialDisbursement DesignatedAccount FinancialReporting 28. Financial Statements and Project Reports will be used for project monitoring and supervision. Based upon the FM arrangements o f this project Financial Statements and Project Reports will be prepared monthly, quarterly, and annually by the Finance Department o f IARCSC. These reports will be produced based on records kept on Excel spreadsheets after due reconciliation to expenditure statements from SDU (as recorded inAFMIS) and bank statements from DAB. 29. The quarterly Project Reports will show: (i) and uses o f funds by project component, and sources (ii)expenditures consolidated and compared to governmental budget heads o f accounts. PCDEinance Department (IARCSC) will forward the relevant details to SDUDBER with a copy to IDA within 45 days o f the end o f each quarter. The government and IDA have agreed on a pro forma report format for all Bank projects; a final customized format for CSMP will be agreed prior to project negotiations. 30. The annual project accounts to be prepared by SDU from AFMIS after due reconciliation to records maintained at the IARCSC, will form part o f the consolidated Afghanistan Government Accounts for all development projects. This i s done centrally in the Ministry of Finance Treasury Department, supportedby the Financial Management Advisor. DisbursementArrangements 31. Table 1 shows the allocation o f IDA proceeds in two expenditure categories. The categories for "goods, consultants' services, and training" are set forth in the financing agreement to facilitate preparation of withdrawal applications and record-keeping. Category 2 i s subject to a condition o f disbursement. Project funds will be disbursed over 48 months. The final disbursement deadline is set at four months after the closing date. 50 32. During this additional 4-month grace period, project-related expenditures incurred prior to the closing date are eligible for disbursement. Disbursement procedures set out in the Bank's Disbursement Guidelines and Project and the Bank's "Disbursement Handbook for World Bank Clients" (May 2006) are applicable to this project. Expenditure Category Amount of the Grant Financing Allocations Percentage 1.Goods, Consultants' servicesand Trainingfor Parts 1, 11,000,000 100% 2(a), 2(b) and3 ofthe Project 2. Goods, Consultants' servicesand Trainingfor Part2(c) 2,500,000 100% ofthe Project 33. Summary Reports. Summary reports in the form o f Statements o f Expenditure will be used for expenditures on contracts below US$25,000. 34. Designated Account. A single designated account will be opened at DAB or in a local commercial bank in US dollars for a maximum amount o f US$600,000, representing 3 months o f estimated expenditures. The SDU in M o F will manage both payments fiom and new advances to this account. The designated account will be replenished on a monthly basis. 35. Cash advances may be issued from the DesignatedAccount to be held and managedby IARCSC. This agency's internal controls, cash handling accounting, and preparation o f Statements of Expenses (SOEs) have been assessed as satisfactory. 36. New cash advances will only be made when all other prior cash advances have been justified through submission o f SOEs to the SDU. 37. Direct Payments. Third-party direct payments will be permitted for amounts exceeding approximately US$ 100,000. Although below the customary minimumvalue, this will permit flexibility inmakingpayments. All suchpayments requirerecords (supporting documentation) the requirements for which will be inthe Disbursement Letter. 38. Preparation of Withdrawal Applications. The SDU will review withdrawal applications for quality and conformity to Treasury procedures, and then obtain the authorized signatures. Selected IARCSC finance staff will be registered as users o f the World Bank Web-based Client Connection system, and play an active role inmanagingthe flow o f disbursements. Financial Management Covenants M o F shall submit audited financial statements for the project within six months o f the end o f each fiscal year. The Project's audit report will cover the financial statements, the Designated Account, and SOEs, inaccordance with terms o freference agreed with the Association. Un-audited project interim financial reports will be submitted by Finance Department (IARCSC) quarterly to the World Bank and a copy to SDU-MoF within45 days o fthe end o f each quarter. PCD (IARCSC) will ensure that the new Financial Management Specialist to be employed i s retained throughout the duration o fthe project inorder to ensure smoothproject implementation. 51 SupervisionPlan 39. During project implementation, the Bank will supervise the project's financial management arrangements. The team will: Review the project's quarterly un-audited interim financial reports as well as the project's annual audited financial statements and auditor's management letter. Review the project's financial management and disbursement arrangements (including a review o f a sample o f SOEs and movements on the Designated Account and bank reconciliations) to ensure compliance with the Bank`s minimumrequirements. Review agency performance in managing project funds to ensure that it i s timely, accurate, and accountable. Particular supervision emphasis will be placed on asset management and supplies. Review o f financial managementrisk rating and compliance with all covenants. Conclusion 40. The FM arrangements, including the systems, processes, procedures, and staffing are adequate to support this project subject to implementation o f the items listedinthe actionplan. - 52 MAP SECTION 60°E 65°E 70°E 75°E Amu To Darya UZBEKISTAN Dushanbe Murghob TAJIKISTAN To Chardzhev To TAJIKISTAN To Kulob To Shazud Dushanbe To Qurghonteppa AFGHANISTAN TURKMENISTAN Faisabad JOWZJAN JAWZJAN¯¯ Pyandzh B A L K H KONDOZ KUNDUZ ¯ ir Kondoz Kunduz ¯ TTaloqan aloqan ¯ ¯ Pam h Sheberghan ¯ Mazar-e ¯ s Shar¯if Sharif TAKHAR BADAKHSHAN ¯ u Saripul TTirich Mir irich Samangan ¯ Baghlan ¯ K (7690 m) To Meymaneh Mary SAMANGAN ¯ B A G H L A N ¯ F A R YA B ¯ ¯ u d To To Chitral Mashad SAR-E POL SARIPUL ¯ ¯ 35°N Morghab i nNUREST¯AN NURISTAN ¯ Da¯rya-yeQ¯onduz B A D G H¯I S ¯ H Mahmud-e Raqi Raqi 35°N P ¸ ¯ ¯ ¯ KAPISA ¯ ¯ ¯ Nuristan Nurestan ¯ ¯¯ a r Qal`eh-ye Now Qal`eh-ye Bamian Bamyan ¯ ¯¯¯ o PARW¯AN Asadabad ¯ ¯ Charikar Charikar ¯ ¯ ¯ p LAGHMAN To a ¯ KUNAR m i a ng ¯ e BAMYAN ¯ KABUL ¯ KABUL Mehtarlam ¯ Mardan Herat s ¯ u s R Chaghcharan¯ PAKISTAN Harirud ¯¯ Jalalabad ¯ ¯ ¯ WA R D A K Meydan ¯ Shahr INDIA Khyber Pass H E R AT¯ LOGAR NANGARHAR ¯ G H O R To Peshawar Pol-e `Alam `Alam PAKTIKA Ghazni Ghazni¯ Gard¯iz Gardiz ISLAMIC Helmand G H A Z N¯I KOWST Indus To Kowst Kohat 0 50 100 150 Kilometers REPUBLIC O U R U¯ Z G A N ¯ Sharan OF IRAN Farah F A R A H ¯ 0 50 100 Miles Tarin Tar¯in Kowt PA K T¯I K A ¯ Harut ¯ ¯ Farah ¯ Z A B OL ¯ U Qalat ¯ ¯ Khash Tarnak ¯ Kandahar¯ Lashkar Gah ¯ AFGHANISTAN Hamun-e ¯ ¯ Arghandab Saberi¯ ¯ To Zhob D a s h t - I M a r g o PROVINCE CAPITALS Zaranj N ¯I M R O NATIONAL CAPITAL U Z ¯ H E L M A N D H I L M A N D K A N D A H A R ¯ RIVERS Helmand To Quetta MAIN ROADS 30°N Gowd-e NOVEMBER Zereh RAILROADS 30°N IBRD This map was produced by the Map Design Unit of The World Bank. PROVINCE BOUNDARIES The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank INTERNATIONAL BOUNDARIES 33358 2004 Group, any judgment on the legal status of any territory, or any 60°E PAKISTAN endorsement or acceptance of such boundaries. 65°E 70°E