Report No. 28446-BR Brazil Country Procurement Assessment Report March 2004 Latin America Procurement Team (LCOPR) Document of the World Bank Brazil CPAR TableofContents Table ofContents ABBREVIATIONS AND ACRONYMS.................................................................................................. i1 PREFACE............................................................................................................................................... V I EXECUTIVE SUMMARY .................................................................................................................. vi11 1. BACKGROUND ..................................................................................................... 1 2. A. Public Sector ............................................................................................................................. FINDINGS ............................................................................................................. 1 1 (i) LegalFramework.......................................................................................................................... 1 (ii) ProceduresandPractices............................................................................................................. 5 (iii)OrganizationandResources....................................................................................................... 9 (iv) Audit andAnti-corruptionmeasures....................................................................................... 17 B PerformanceonWB-financedProjects.................................................................................... . (v) Public Sector ManagementPerformance............................................................................... 18 23 (i] Decentralization.......................................................................................................................... 23 Disbursement Percentage...................................................................................................................... (ii) Thresholds for ProcurementMethods, Prior Reviewand Standard 23 (iii) Performance................................................................................................................................. 24 (iv) Anti-CorruptionandMisprocurement.................................................................................... 25 (v) The Hiring of IndividualConsultants.................................................................................... 26 (v) Special Conditionsof Schedule4 of the LoanAgreement................................................. 27 (vi) Use ofNationalRules for Low-valueProcurement............................................................. 28 3. GENERAL RISKASSESSMENT ....................................................................................30 31 ANNEX 1 - QUESTIONNAIREONPUBLIC PROCUREMENTSYSTEM.......................................... 4. ACTION PLAN FORTHEIMPROVEMENT OFTHEPROCUREMENTFUNCTION 33 ANNEX 2: BRAZIL'S COMPRASNET................................................................................................. 63 ANNEX 3: CHANGE INLAW OR CHANGE INCULTURE?.............................................................. 69 ANNEX 4: INTERNATIONAL GUIDELINES FORGOOD PROCUREMENTLAW; HOW DO BRAZILIANREGULATIONS FIT INTHIS MODEL ? ........................................................ 71 ANNEX 5: PROCUREMENTOF PHARMACEUTICALS.................................................................... 77 ANNEX 6: UNAGENCIES PARTICIPATION INPROJECT IMPLEMENTATION............................ 79 ANNEX 7- CONFERENCEONNORMATWEBODIES ...................................................................... 83 ANNEX 8: SAMPLE QUALIFICATIONS OF A FULLY ACCREDITED GOVERNMENT PROCUREMENTOFFICIAL................................................................................................. 85 ANNEX 9: THE VIEWS OF THE CONSTRUCTIONINDUSTRY....................................................... 87 ANNEX 10: EXAMPLE OF A CODE OF ETHICS................................................................................ 89 iv BrazilCPAR TableofContents V BrazilCPAR Preface Data and Basisfor Report Preparation o f this Country Procurement Assessment Report (CPAR) began in November 2001 immediately after the Government o f Brazil received the Country Procurement Issues Paper. The report was managed by Efraim Jimenez, Lead Procurement Specialist acting as Country Procurement Specialist in Brazil. The report is the work o f a World Bank (WB) team consisting o f Bernard Becq, Lucian0 Wuerzius, Alexandre Borges de Oliveira, Anemarie Proite, Tiinia Lettieri and Andre L. Ramalho, Consultant. Mr. Jose August0 Carvalho and Mr. Jose Baigorria Pera, Consultant, provided useful comments to the report. Meetings with the consulting industry in Rio de Janeiro were organized and executed by a Professional Association on Consulting Services (ABCE) team managed by Mr. Helio Amorin. Construction industry consultations in Siio Paul0 were organized and managed by Dr. Darcylo de C. L.e Valle, Executive Director, Heavy Construction Industry National Association. We would also like to thank the support provided at a Global Distance Learning activity in Brasilia by Morgan Bono and David Gray. The assessment o f the internal and external audit capabilities o f the Federal Government in the June 2002 Country Financial Accountability Assessment (CFAA) prepared by Mr. David Shand, Financial Management Advisor, Task Manager, and his team are relevant to this assessment, and portions o f the CFAA are reproduced inthis report as acknowledged. WB peer reviewers were Messrs. Robert Hunja, and V.S. Krishnakumar. Mr. Surendra Agarwal made valuable contributions at the outset o f the studies. Dr. Michael Barzelay, Reader in Public Management, from the London School o f Economics and Political Science, provided guidance and stimulating comments. Valuable comments were also received from Mmes. Franqoise Bentchikou and Pamela Bigart, and Mr. Giovanni Casartelli. Ms. Sabine Engelhard represented the Inter-American Development Bank at the review meetings. We acknowledge with many thanks the editing work by Ms.Suzanne Snell-Tesh, Consultant. The Government o f Brazil, through the Ministry of Planning and Budgeting, approved the draft CPAR and submitted to the Bank an action plan for the improvement o f the procurement function inJanuary 2004. Acknowledgements Support from the Government o f Brazil was outstanding. The report, recommendations and action plan were confirmed by the head o f the Executive Secretariat o f the Ministry o f Planning, Dr. Nelson Machado. Special thanks to Dr. Rogerio Santanna dos Santos, Secretary o f Logistics and IT (SLTI), Dr. Demian Fiocca, Secretary o f International Affairs (SEAIN) and Mr. Marcos Ozorio de Almeida, SLTI Adviser, from the Ministry o f Planning. Mr. Jesiel Soares da Silva from SEAIN vi Brazil CPAR Preface contributed to reviewing o f the report, and together with Mr. Ozdrio prepared the Technical Note o f the Ministry of Planning. Mmes. Renata Vilhena and Elisabeth Braga, former officials o f the Ministry o f Planning, contributed greatly in the early stages o f the study. Finally, the report would not have been possible in its current form without the extraordinary support of Vinod Thomas, Armando Araujo, Bernard Becq, Mary Sheehan, and Joachim Von Amsberg and the other sector leaders o f the WB Brazil Country Management Unit (CMU). vii BrazilCPAR Executive Summary INTRODUCTION THECPAR This study is the Country Procurement Assessment Report (CPAR) o f Brazil. The CPAR i s intended to contribute to a dialogue with the government on its procurement policy and management agenda by surveying the existing situation, assessing the situation in light o f appropriate standards, indicating a meaningful array o f issues that could be incorporated into the government's agenda, and examining the desirability and workability o f practices that would address those issues. Through the CPAR, the World Bank (WB) i s capable o f making this contribution due to its long-standing engagement with the country's public management policies, including those related to procurement, and to its knowledge o f worldwide government practices in this area o f public management. Therefore, this report represents an effort by the WB to seek further ways to support the reform and modernization o f government procurement inBrazil. Consequently, two main audiences will benefit from this report: (i)the Government of Brazil, which may wish to marshal its program of modernization o f the government's procurement by taking the findings presented in this report into account and (ii) staff o f the WB assigned to Brazil. Such findings are based on interviews the carried out with representatives from about 50 public agencies o f the Federal Government, close cooperation with local counterparts, and workshops with key stakeholders. The next section presents a summary o f the main findings, including an assessment o f key aspects that characterize federal government procurement. Additionally, it also signals the aspects o f the national law or regulations to which exceptions should be made in the individual loan agreements signed between the Government o f Brazil and the Bank. Annex 1to this report offers an analytical review o f the procurement practices inthe country, which sets the stage for the choice o f thresholds for procurement under Bank loans, and Annex 2 details the flagship feature o f the Brazilian federal procurement web portal, COMPRASNET. THECPAR AND THE CAS This CPAR and the proposed Action Plan are consistent with the WB's Country Assistance Strategy (CAS) for Brazil. Specifically, the CAS Matrix, Part D.2, Public Sector Management, calls for (a) institutional assessments and (b) development o f collaboration between the Bank and government institutions. Following such recommendations, the study should be a complete assessment o f the country's procurement, and it should be prepared inpartnership with the Government, aiming to provide a comforting overview o f good governance for an adequate investment viii BrazilCPAR Executive Summary climate. In tandem, the Action Plan should focus on strengthening the medium and long- term reform steps towards modern government procurement and good governance. The Country Assistance Strategy (CAS) Report was presented to the WB Board o f Directors on November 10, 2003 as part o f A More Equitable, Sustainable and Competitive Brazil (Report No.27043- BR). The report found that the framework of the procurement hnction in the country was satisfactory overall. Furthermore, given the size and diversity o f the WB's state lending portfolio inBrazil, it has completed an assessment o f procurement in the State o f Ceara and initiated similar work in the states o f Bahia and Pernambuco. SUMMARY OF KEY FINDINGS AND BRIEFANALVSIS PUBLIC MANAGEMENT PROCUREMENT AND Good governance depends strongly on a country's public management policies, which are government-wide institutional rules and organizational routines in the areas o f the expenditure planning process and financial management, civil service and labor relations, procurement, organization and technology, and audit and evaluation. Public management policies, not least those related to procurement, have a strong bearing on the character and performance of governmental institutions. Practically none o f the organizational functions through which the executive government operates can be accomplished effectively with inadequate public management policies in the area o f procurement. Clearly, the effectiveness with which the organizational function o f delivering public services is performed depends critically on procurement practices. Accordingly, procurement practices deserve to be assessed and improved with as much priority as other areas of public policy and management. It normally falls to central coordinating agencies, such as Brazil's Ministry o f Planning, Budgeting, and Management(MP), to lead efforts to assess and improve procurement practices. Brazil can be regarded as a mature country in terms o f its economy and technology, with very active industrial segments. Furthermore, the Brazilian Public Administration i s highly developed in many areas, including financial management and control of public assets. The reengineering experienced by the public sector over the last decade is a model for other developing countries. The Federal Government o f Brazil is a large purchaser o f goods and services and this purchasing power can be leveraged to create savings and more economic 1x Brazil CPAR Executive Summary procurement. It invests about US$5 billion in goods and services and several more billions annually in civil works. In terms o f workload, the Federal Government carried out more than 42,000 procurement transactions in 2001 .'Not surprisingly, public investment represents a significant share o f economic activity. As a result, both the public and private sector agree that the procurement process, besides being transparent, also needs to be economic and efficient and that new tools are needed to achieve greater effectiveness and increased savings. In response, led by the team o f Secretariat of Logistics and Information Technology (SLTI) within the MP, the Government has made considerable progress in the direction o f developing new procurement tools that adequately reflect the principles o f transparency, economy and efficiency. EVOLUTIONTHE' LEGAL OF FRAMEWORK PROCUREMENT FOR Inthe late 1960's, just as Brazilwas about to enter the impressiveeconomic boom o f the following decade, the Federal Government undertook a significant policy reform in the area o f public management. A 1967 decree consolidated administrative reform and regulated the general legal framework that public entities would adopt in order to interact with the private sector (Decree-Law 200/67). The 19 articles of this decree lay down the basic policy features o f government procurement (principles and procurement methods), but all particulars o f biddingand contract documents (i.e. qualification requirements and types of contract) were left to be dealt with ineach invitation for bids. In 1986, in response to public demand for more democratic institutions and clamors for transparency in public procurement and contracts, the Government issued a new procurement law that had a better structure and was based on sound legal doctrines (Decree-Law 2,300/86). Seven years later, in 1993, the emergence o f the issue o f corruption as a dominant public concern caused the Government to pass new legislation regulating procurement (Law 8,6661'93). Reflecting that concern, the procedural requirements o f the procurement process, as established by the 1993 law, were elaborate and difficult to modify through administrative action due to their statutory basis. The legislation, which is currently effective, is very detailed, as indicated by its many (125) articles on procurement, reflecting the legalistic traditions o f the Brazilian public administration. However, after ten years, experience has shown that this sophisticated process does not necessarily lead to the best choice o f bids. The 1993 law gives more weight to formal rather than to substantive aspects. This specific course o f action often causes protracted disputes, which are quite often taken to court. As a consequence, the Federal Government recognizes that 50% or more o f federal public procurement is carried out through non-competitive methods, mainly in order to avoid the time-consuming bidding process. Strikingly, Article 24 o f the law allows for many departures (24 reasons) from truly competitive procedures. It is important to note, however, that the excessive use o f direct contracting inBrazil i s not necessarily linked to corrupt or fraudulent practices. Data fumishedby Secretary of Logistics and Information Technology (SLTI), Ministry o fPlanning, Budgeting, and Management (MP) X Brazil CPAR Executive Summary Notwithstanding the constraining environment imposed by the 1993 law, the MP's STLI has experimented with potentially significant technological innovations, whose institutionalization and expansion have yet to occur. Inthis regard and in response to those challenges, the Federal Government i s moving rapidly towards e-government and e-procurement. The new method, used in the purchase o f off-the-shelf goods and non-complex services, is a reverse auction or pregiio. In pregiio, following the appropriate advertisement o f the bidding opportunity, bidders submit an initial price proposal in a sealed envelope. During a public session that i s fully recorded, bidders are encouraged to offer discounts until the lowest possible price is reached. In this method, qualification requirements are assessed on an ex-post basis. Moving further towards modernpractices, the Government also developed an Internet-based system to implement the electronic version o f the pregiio, which can be accessed through COMPRASNET. In the period 2001-2002, the use o f Preggo reduced the number o f contracts awarded through non-competitive methods by 20%. It has been unanimously agreed that the successful implementation of this new procurement method may be credited to the following basic factors: (i)it gives more weight to ensuring economy and efficiency, but it does not disregard formal requirements, which are kept to the minimumnecessary; (ii) itopts for post-qualification o f bidders, which leaves little room for frivolous complaints, since the price is known before a decision on the respective qualification i s made; and (iii) the pregoeiros (the only public servants able to conduct the pregiio sessions) are selected from professionals who have been accredited after having received specific intensive training. The Government has also been puttinga lot o f effort into increasing transparency and improving the supervision o f Government procurement by making use o f e- procurement mechanisms, such as COMPRASNET and OBRASNET. The latter includes a database o f costs, progress reports o f works, photography, and material regarding civil works implemented by the Federal Government, based on information available from the National Court o f Accounts (TCU) and the Government Development Bank (CEF). Remarkably enough, as far as e-procurement i s concerned, Brazil has played a leading role in its implementation in the Region, and the WB should continue supporting the exchange o f information, visits, and agreements that have been made possible with countries such as Bolivia, Nicaragua, Guatemala, Colombia, and Peru, to promote familiarity with e-procurement inthe Region.2 With regard to procurement control, the Brazilian model is composed o f two auditing institutions at the federal level. The FederalSecretariat o f Internal Control (SFC) under the Controller General's Office o f the Republic (CGU) i s responsible for internal control and audit. As an institution, SFC i s familiar with the procurement and financial regulations o fthe WB's lending operations and plays an important role in monitoring and auditing WB-financed projects independently. External audit i s the responsibility o f the Inorder to fbrther strengthen this partnership, the Bank sponsoredjointly with SLTIthe Second International Seminar on Public Procurement, in Siio Paulo, in August 2002, duringwhich a videoconference was heldwhere Brazil, Mexico, Guatemala, Bolivia, Peru and Argentina and the WB sharedtheir experience and approaches inthe development o fe-procurement. x i Brazil CPAR Executive Summary National Court o f Accounts (TCU), whose institutional structures and functions are well defined. NOTABLE CHARACTERISTICS OF BRAZIL'SPROCUREMENT LplW Dispute resolution. The current legal framework lays no foundation for a dispute resolution system for government contracts. The only available recourse it provides is an administrative process, but any disgruntled party may file ajudicial claim at any time. In addition, all acts performed by the public authority under a contract are also subject to oversight through both internal and external control mechanisms. Thus, all disputes that arise out o f a government contract are subject to review once the administrative process has been completed, and ample right o f defense must be granted to the party claiming to have been injured. Moreover, the exhaustively detailed legal provisions discourage flexible interpretations and allow the disqualification of proposals for reasons that are not substantial. This results in numerous administrative complaints (recursos) and injunctions issued by courts o f law (medida Ziminar or antecipaqBo de tutela), which usually hold up the biddingprocess by many months if not years. More often than not, these mechanisms, which were originally meant to increase the transparency o f the procurement process, are used by participants for the sole purpose o f gaining some advantage during the period of delay (Le., providing subcontracting arrangements in exchange for dismissing a complaint). The consultation made with government agencies and government suppliers reveals a general consensus that to the potential gain from reducing opportunities for complaints would justify the effort to revise the law. Anti-corruption efforts. In the fight against corruption, the legal framework established inBrazil has set up an interesting network o f alternative control mechanisms, such as boards that bring together civil society representatives and members of the Attorney-General's and State Attorney's Offices. This kind o f arrangement can be seen specifically in the case o f decentralized federal programs in the social sector such as Unified Health System (SUS) and the National Basic Education Fund (FUNDEF). Government has also been putting a lot o f effort into improving and implementing effective control mechanisms, with a view to ensuring proper law enforcement. One o f these initiatives is the creation o f an office o f the Controller-General (CGU) reporting directly to the Presidency o f the Republic, with a mission to provide due diligence for complaints on corruption in the Federal Government. CGU has received more than 6,000 complaints o f irregularities, o f which 2,680 have been resolved and 2,233 are under investigation; 1,087 cases are seeking additional information and 762 individuals have been penalized. CGU's annual report points out that it acted actively in the cases that received ample coverage in the media. Finally, the transparency o f the 1993 procurement law provided an adequate legal framework to combat corrupt and fraudulent practices, but this has not been enough to succeed in their eradication. Lack of a normative entity. A policy-making agency responsible for developing procurement norms and ensuring standardization o f documents and procedures does not exist. Despite the fact that SLTI i s responsible for the procurement fimction and has played a key role in the development o f the e-procurement initiatives, it does not fully xii BrazilCPAR Executive Summary cover functions that are typical of a normative body. This gap in the procurement function is filled at times by the legal departments of the agencies, by the Federal Secretariat of Internal Control (SFC) and the Courts of Accounts, or by other law enforcement units that are not specialized in government procurement. However, this arrangement leads to the dispersal of instructions and regulations on procurement that are often controversial, depending on the maturity of the originating institutional body. Lack of a procurement career stream. It must also be noted that a government procurement career stream does not exist. Consequently, there are neither incentives nor special compensations for staff carrying out procurement, and there is a lack of sufficient training opportunities. Although Brazil enjoys a talented and qualified cadre o f Federal Government officials, those who work in procurement require additional incentives to improve skills and qualifications. Widespread delays and over billing. Another issue that deserves special consideration is the fact that contract implementation in Brazil is frequently delayed (six months to a year is common) for a variety of reasons, which include deficient and incomplete specifications, unrealistic completion periods, delayed access to the construction site, uncertain hnding, and payment delays. Most o f the problems can be attributed to poor planningand inadequatecontract management, which lead to excessive use of variation orders, to cost overruns that are questionable, and to other problematic features in contract implementation. The law prescribes a maximum percentage for quantity increases (25%), and a large number of quantity amendments are made with minimaljustification. Inparallel, there is also evidence of over billing, especially in civil works contracts, where bidding documents include the contracting authority's cost estimate. Insome instances, the over billing is outright fiaud. However, cost overruns are not always unjustified. Very often they are due to incomplete design specifications and incorrect contract estimates at the time o f bidding. Additionally, although it can be said that the contractual conditions that are used for the procurement of civil works and goods are fair, they are usually too general to cover specific critical aspects of contract scope andimplementation. This is particularly true inlight of internationally acceptedpractices, such as those o f the International Federation o f Consulting Engineers (FIDIC) for civil works, or even those o f the standard contracts issued by the WB for the purchase o f goods under its loans. Such imperfections may also contribute to deficient contract implementation. FEASIBLEALTERNATIVESMODEKNIZE TO PROCUREMENT Establish a normative entity. Since the current institutional rules and routines for procurement are impracticable in important ways, as indicated by the unnecessarily long timeframe required to complete procurement, innovation in these areas is urgently needed. The Government's earlier attempts to introduce the use o f information technology, several new procurement methods, restrictions to direct contracting, and the mechanism ofpost-qualification of bidders into the legislation have all been supported by the WB. These measures could represent significant improvements with regard to the existing law. However, the process o f making changes in procurement policy i s not entirely workable either. Inorder to tackle these issues effectively, the WB is prepared to continue providing support to build on recent experience with information technology- Xlll *.. BrazilCPAR ExecutiveSummary assisted procurement practices, including the component change involving post- qualification o fbidders, and to endow a normative body with legal authority to undertake innovation in procurement practices, operating within an adequate statutory fi-amework. Furthermore, establishing such a body would avoid the dispersal of instructions and regulations on procurement and the myriad contradictory interpretations of current policies and procedures. It is generally understood that its effectiveness and authority would depend on its independence, a clear definition of its responsibilities, good operational capacity, and efficiency. One of the first tasks of the proposed body would be the design and implementation of a training and accreditation program for professionals who function inkey procurement positions, which would help strengthenthe institutional mechanisms for remedying systemic problems in government procurement. The Government informed the WB that it is willing to consider some sort of normative body within the context ofthe reformofthe federal procurement law. Developstandardbiddingdocuments. Another recommendation to improve the workability of the tender procedures in Brazil is that standard bidding documents be developed for use by all Federal Government bodies and agencies, including the autonomous and semi-autonomous agencies, and even by state and municipalbodies, for both procurement of goods and works and for contracting consulting services. Web-based planning, dispute resolution, and bulk buying. Since frequent delays in procurement and contract implementation have hindered the achievement of economy and efficiency in the government's procurement, the development of a web- based planning tool to overcome the procurement planning deficiencies would be an effective solution. Additionally, an independent mechanism for dispute resolution would represent a step towards modernization that is very likely to positively impact and streamline contract implementation. Furthermore, it is recommended that the Government make strategic use of its power both as a purchaser and a consumer to achieve perfect compliance with the principles o f economy and efficiency. Clearly, software licensing and the purchase of hardware, consumables, printing services, and pharmaceuticals would qualify as items that may be subject to special procurement, supplying, and pricing arrangements to the advantage o f the Government. In this regard, this assessment presents, in Annex 5, the case study ofpharmaceuticals, highlighting the need for Government to address strategic procurement with innovative solutions based on its huge purchasing power-and the potential gains. The Government has responded enthusiastically to this recommendation and is seekingsupport to develop a strategy to implementthe recommendation. PROCUREMENTUNDER WB-FINANCEDOPERATIONS Many federal agencies play a coordination and supervisory role in federal operations involving the participation o f states and municipalities. There are examples of good models for project supervision and implementation, while other projects have yet to establish a suitable scheme. The quality and implementation of the WB's portfolio has improved in the last years primarily because of increased supervision efforts focusing on quality. However, the record on procurement performance and contract management under WB-financed projects is mixed. While generally better than for government XlV BrazilCPAR ExecutiveSummary procurement, procurement for WB-financed projects shows the same strengths and weaknesses that affect local procurement. Ingeneral, implementing agencies are familiar with the WB's procurement policies and procedures and make use o f the standard bidding documents (SBD), but there are shortcomings in their application and interpretation, which have generally resulted in delays. While not frequent and not well substantiated, there have been allegations o f corrupt procurement practices and misappropriation o f funds, which in some cases have required action by the WB and Government. Experience with project implementation, including procurement, i s closely related to the organizational structure and staffing o f the Project Implementation Units (PIUs). Common problems with PIUs are high staff turnover ,lack o f staff familiarity with the WB's Guidelines and SBD, and the limitation of their experience almost exclusive to localprocurement procedures. Moreover, the costs o f assessingprocurement performance under WB-financed loans are higher in Brazil than in other countries because o f the decentralized nature o f project activities and the size o f the country. Other difficulties raised in the individual capacity assessments o f implementing agencies include (a) difficulties inthe proper use o f WB SBDs and evaluation procedures; (b) frequent use o f variation orders; (c) inadequate filing and information systems, (d) cancellation o f bidding procedures; (e) delays in evaluation of bids and decision making; (e) complaints not shared with the WB; (f) misunderstandings inthe use o f shopping procedures; and (g) inappropriateuse o f selection procedures for hiringconsultants. In view o f the good country environment overall and the solid procurement practices built upon the stringent directives o f the 1993 law, the risk to procurement under WB-financed loans inBrazilmay be considered average. There is, however, a large disparity o f resources and capacities across the different areas o f this vast country. The Federal Government i s well positioned to carry out efficient and economic procurement, but the same cannot be said for all other subnational government entities, at least in the medium term. Consequently, the quality and effectiveness o f WB supervision and technical support are more critical to project success in certain decentralized projects. For this reason, the following recommendations apply to preparation and implementation o f such projects: (a) carry out a detailed capacity assessment o f the implementing agencies and develop realistic action plans; (b) support the intensive training o f local officials on WB policies and procedures; (c) develop and require strict implementation o f web-based information systems; (d) streamline procedures for the hiring o f individual consultants; (e) ensure that procurement supervision arrangements for very decentralized projects include independent procurement reviews; and (0 innew operations, support inclusion o f special procurement conditions that allow the use o f preg6o and other modern procurementpractices that are not listed inthe WB's Procurement Guidelines. SUMMARY AND CONCLUSION The findings o f this study can be summarized as follows: (a) The procurement law o f Brazil has fostered sound practices, but there are many aspects that still deserve special consideration. xv Brazil CPAR ExecutiveSummary (b) The Federal Government needs to consider creating within the new procurement law a normative body to allow for innovation inprocurement practices. (c) The Government needs to develop speedy administrative alternatives in order to reduce the number o f complaints and obstructions during the bidding process. Such alternatives would include implementing post-qualification o f bidders and instilling confidentiality in evaluationphase o f the process. (d) The Federal Government needs to consider creating within the new procurement law an effective dispute resolution system for contract implementation. (e) The Government's external auditors, such as TCU and the State Courts, should not issue orders or regulations on governmentprocurement. (0 Brazil needs to establish incentives to retain qualified and motivated procurement staff, by providing specific training. (8) The Federal Government needs to adopt standard bidding documents and contract forms, which would improve the procurement process. (h) Although significant advances havebeen made ine-procurement, there is still room to achieve greater modernization. This review concludes fbrther that Brazil is well suited to support an innovative approach in the WB's supervision and procurement policy. The WB i s aware o f the increased capacity o f middle-income countries, and Brazil offers a remarkable example of strong institutional capacity that can be used effectively to improve the implementation o f WB-financed projects and programs. The change in approach would streamline the processing o f WB Sector Wide Approaches (SWAPS) and programmatic lending and would simplify the implementation o f projects involving decentralized entities with small procurement spends. The CPAR also explored the Government's interest in initiatives to transform the procurement approach by tapping into the institutional capacity for using national regulations for low-value procurement. As a partner with Government and as an institution with the mission to promote development, the role o f the WB i s to assist government officials who are responsible for procurement to formulate the Government's agenda in this public management policy area, to craft workable designs that address the issues on the agenda in a significant way, and to lend support in implementing policy choices and associated changes in operating practices. The WB reaffirms its commitment to supporting the Government in successfblly achieving these objectives. xvi Brazil CPAR 1 I. BACKGROUND The Brazilian economy i s the largest in the Latin American region. There are 2,050 purchasing units in the Federal Government. More than 30,000 Federal Government employees carry out procurement activities on a regular basis. Government Procurementin Brazilis robust. Particularly in comparison with its neighbors,, government procurement in Brazil is well structured and is fbnctional. Moreover, in the last few years, Government has introduced some innovative and noteworthy features and methods for government e-procurement that are already serving as a model worldwide. Brazil's procurement innovation is bignews; what i s more familiar is the fact that Brazil's procurement system i s far from perfect and it is extremely slow. It has been vulnerable to mismanagement and cases o f corruption, particularly in civil works, are not rare. While government procurement procedures are well known, functional, and not an obstacle to development and progress, they can certainly be improved. This report has provided the basis for a dialogue with Government on an action plan to improve Government procurement performance by building on actions already undertaken and mapping out a reform process that will enable the system to move to a low risk classification within the next five years. 2. FINDINGS A. Public Sector (i) Legal Framework Principles and laws. Article 37 o f the Federal Constitution establishes that all public contracts shall be procured through competitive procedures. It also assigns responsibility to the Federal legislative branch to pass laws regulating public procurement observing the following basic principles o f public procurement by all public administration: competition, transparency, publicity and equal treatment among competitors. Law 8.666 was approved on June 21, 1993, and constitutes the basic legal procurement framework in Brazil, along with its amendments and various regulation^.^ Law 10,520 ofJuly 17,2002, establishes the use of the preg8o.o;Law 9.841 ofOctober 5, 1999 includesan article establishingthat govemment procurementpolicy should give preferenceto the purchaseofgoods from micro- and small-sized firms. This regulation isnot effectively applied at the Federallevel, as the Brazil CPAR 2 State and municipal governments also have procurement regulations but these should be in line with Law 8.666193. A more comprehensive description of the legal framework is provided inAnnex 1. The WB recognizes that the current legal framework is based on the right principles and hence may lead to fairly efficient and transparent procurement of goods works and works and, to a lesser extent, consulting services. However, there is still ample ground for improvement and the country would benefit immensely from a legislative review to consolidate, modernize, and simplify the legal framework for procurement. The specificity of the legal framework has resulted in strict and very inflexible interpretations of the statutes and in the proliferation of complaints by bid participants about small and inconsequential irregularities in competitors' bids, allowing the disqualification of proposals for non substantive reasons. The constant stream of procurement disputes results in delayed contracting and purchasing. The numerous administrative complaints (recursos) and injunctions issued by courts of law (medida liminar or antecipaqiio de tutela) may hold up the biddingby many months if not years. More often than not, these mechanisms, that were originally meant to increase the transparency of the procurement process, are used by participants for the sole purpose of gaining some advantage during the period of delay (i.e., providing subcontracting arrangements in exchange for dismissing a complaint). The consultation made with government agencies and government suppliers reveals a general consensus that the potential gain from reducing opportunities for complaints would in itselfjustify the effort to revise the law. Another characteristic of the legal fiamework of the procurement is that Article 24 of the law allows for many departures (for about 24 reasons) from truly competitive procedures. The Federal Government recognizes that 50% or more of federal public procurement is carried out through non-competitive methods. To resolve the problem, the Government has invested in deploying modern infrastructure and systems, like reverse auction (pregiio), that would provide a rapid and simple procurement process for off-the- shelf items and non-complex services, aiming at avoiding direct purchases. The pregiio and its technical framework, COMPRASNET, is described in the section on e- procurement below and Annex 2. Inthe period 2001-2002, the use ofpregiio has reduced by 20% the number of contracts awarded through non-competitive methods. It is important to note, however, that the excessive use o f direct contracting in Brazil i s not necessarily linked to corrupt or fiaudulent practices. It often represents an attempt to avoidpublic biddinginorder to save time. The procurement law needs modernization. The WB recognizes that the current law, though adequate, nonetheless requires a review to update and introduce greater modernity into governmental procurement regulations. Though the 1993 law clearly addressed the transparency and equal opportunity concerns that led to its enactment, it has since hampered the adoption o f modern features such as electronic volume o fprocurement istoo large for small firms to be able to supply the amounts required. SLTIis studying new mechanisms to stimulate the participation ofand award o f Government business to small and micro-enterprises. Another relevant procurement regulation is found inLaw 8745193 o fDecember 9, 1993, regulating the hiringof individuals on a temporary basis. BrazilCPAR 3 tendering. The WB supports the efforts o f the Brazilian Government to reform the legal framework relating to public procurement. Early in the CPAR dialogue, at the Government's request, the WB performed a survey through interviews conducted at various institutions at the three levels o f government, all o f which were familiar with issues relating to government procurement practices and to compliance with the current law. The survey was conducted by specialized consultants. Generally speaking, the interviewees stated as a fact that the law i s excessive in its level o f detail. The interviewees repeatedly pointed out that, generally, excessive regulation o f formal aspects favored bids that were better drafted in formal terms, to the detriment o f those that offered the greater advantage to the purchaser. Devoting excessive attention to the formal aspects o f tender proceedings may give bids an appearance o f regularity, while in effect favoring the selection o f a less advantageous bid. Furthermore, such a system incentives to appeal, with the aim, in certain cases involving less scrupulous participants, of exerting bargaining power. Initiatives to change the law. The WB i s aware o f the Government's stated strategy to consolidate experience from a reform o f procedures for procurement o f goods and contracting o f general services, prior to embarking upon a review o f the rules for the biddingofpublic works and consulting services. Realizing that electronic tender methods may not be fully appropriate to the particular characteristics o f civil works and related services, and with a view to avoiding the risks inherent to oversimplification, the WB recognizes the pragmatism o f the Government's position and agrees that reforms and new contracting methods should initially be applied to purchases o f goods and contracting o f consultant's services, whereas changes in tendering o f civil works and contracting o f general services should be left for a later phase. This, however, implies the risk o f having two concurrent laws (one for civil works and consultant's services and another for goods and services), each with its own distinct (and possibly conflicting) principles, nomenclature and procedures, and both in effect at the same time. Annex 3 presents details on the reform initiative as discussed publicly in 2002. In the context o f this dialogue, the WB was informed by Government that it is open to consider the revamping o f the federal procurement law including goods, services, civil works and consulting services in a consolidated body o f law. The WB sponsored two workshops inBrasilia, helped to disseminate the initiative at the First International Seminar o f Public Procurement in August 2001, and was given the opportunity to comment on the new draft law, in order to contribute to its improvement. Subsequently, STLI organized nine public consultation events to discuss a proposal to modify the existing procurement law, which attracted more than 500 participants from 55 entities who contributed more than 270 comments. Inthe meantime, the Congress passed Law 10.520 of July 15 2002, extending the use o f pvegfio to states and municipalities. The WB's own analysis o f the existing Law 8.666193 indicates that changes are indeed required, particularly with respect to streamlining procurement processes, authorizing the use o f modern techniques for the tendering o f civil works and consulting services, without prejudice to the need for simplification and specialization. Inparticular, Brazil CPAR 4 the use o f direct purchase should be highly restricted. The law should make a clear distinction between emergency and urgency as justification for direct contracting. In the WB's opinion, allowing special contracting on the grounds of urgency is not a recommendable practice, since the situation o f urgency may result from omission or failure o f planning. "Emergency," characterized as being the result offorce majeure and limited exclusively to such situations, may be an acceptable reason for awarding contracts without a prior competitive process. However, even in such cases, it is recommended that the law provide an exhaustive definition o f the circumstances inwhich such provisions would apply, as well as a clear attribution o f responsibilities and penalties for misconduct. The Government informed the WB that it would prefer to deal with the direct contracting issue through proper justification rather than through restrictions on its use. Non-Government Organization (NGO) and private sector participation. In order to be more effective in reaching the poor and improving the quality o f many social services, the federal Government may need a new regime that would allow entities to enter into partnerships with NGOs and private sector firms interested in complementing government services to communities or to provide alternatives to government services. The current national regulations do not offer ample mechanisms for public-private partnerships in government functions. Presently, there are three basic mechanisms allowing public funds to reach private entities: (a) Non-Governmental Organizations (NGO) or OSCIP (Organizaqi3es da Sociedade Civil de Interesse Publico) that are qualified and registered pursuant to Law 9.790/1999 and its regulations; (b) research institutions and support foundations (Fundaq6es de Apoio) registered with the Ministry o f Education and Ministry o f Science and Technology pursuant to Law 8.95811994; and (c) concessions o f public utilities and services pursuant to Law 8.987/1995. These regulations are insufficient and inadequate to develop a wide range o f social and technology development activities. The complexity o f the Federal Government procurement would require a variety of partnerships with the private sector, particularly in information technology. It would appear that the need to expand the social safety network and tackle poverty more effectively would require federal hnds to flow to NGOs. The AIDS program is a good example o f a public activity that needs to work with NGOs and segments o f the civil society to be effective. The WB would recommend that Government enact a law establishing a mechanism that allows Government to enter into partnerships with private sector companies and firms, in general selected through competition. to provide modern technology, information, dissemination and research. The law may include the necessary mechanism to transfer funds to NGOs and the ways that the use o f such funds will be The hiringof Fundaq6esand Universities on a sole source basis inWB-financed projects reached unacceptable levels inthe last few years. The W B requires greater transparency andmonitoringo fthis type ofrelationship. Brazil CPAR 5 a ~ d i t e dThe Government indicated that it is studying forms to increase the participation . ~ o f the NGOs, civil society and private sector in delivering public services, including a new law for PPP (Public-Private Partnerships). Brazilianregulationsand internationalguidelinesfor good procurementlaw. InMarch 2002, the heads of procurement of the multilateral development banks (MDB) met to discuss and agree on a common platform when working in the same countries (especially when analyzing local procedures as part o f CPARs such as this one). The platform would also be used by the WB when discussing Sector Wide Approach operations (SWAps) with other banks, bilateral donors, and governments. Annex 4 presents the WB's comparison o f the requirements of local procurement in with international guidelines. The WB invites the Government to consider these guidelines as the basis for a harmonized set o f rules to be applied both to government procurement and procurement financed b y the MDBs. The Government responded favorably to this line of dialogue. (ii) Procedures and Practices The protest mechanism. Article 41 of the Law 8,666/93 establishes the right o f any citizen to contest the bidding documents. This type o f complaint (impugnaqbo) should be filed five working days prior to the bid opening. The administration has three working days to respond. In addition, any person has the right to present a complaint to the Tribunal de Contas da Unibo or to the Secretaria Federal de Controle (Art. 113), denouncing any misbehavior or irregularity under the law. Further, during the bidding process, acts performed by the bidding committee are subject to review in accordance with Article 109 of the law. Complaints to that purpose should be filed within five working days from the notification o f the act regarding: (a) disqualification or qualification o f participants, meaning that a bidder may protest against its own disqualification and/or the qualification of any other bidder; this is by far the greatest source o f protests; (b) evaluation o f proposals; (c) cancellation o f the bidding; (d) non- acceptance o f register, changes in the registration or cancellation of registration; and (e) contract cancellation, contract suspension, and application of penalties. The complaints are presented to the president of the bidding committee, who issues a notification to all other bidders with respect to the entire contents o f the petition. Ifthe complaint addressesqualification or evaluation ofbids, the biddingprocess should be suspended until the final decision. Bidders have five working days from the notification to answer the complaint to protest. After that, the president may either reconsider the decision or, within the next five working days, convert the complaint into an administrative appeal and take it to the superior administrative authority (generally the Executive Secretariat o f the Ministry) to decide. The authority must issue a decision in another five working days. That decision is final at the administrative level. Any interested party not satisfied with the result may apply to the courts for legaljudgment. When a bidder applies to a court o fjustice, it usually requests and obtains an injunction Some states andmunicipalities have already developed legal mechanisms to hire NGOs andOSC (Organizag6esda Sociedade Civil).One example is the Municipality ofRio Janeiro that enacted Decree 19.752 ofApril 5,2001, establishing andregulating such procedures. BrazilCPAR 6 suspending the bidding process until a final decision is reached (which can take months or even years). Although the protest mechanism ensures transparency and protection against bad awards, not infrequently, mischievous bidders abuse this lengthy resolution o f recursas to seek subcontracting arrangements inexchange for dropping their complaint. In its current form, the bidding procedure, which requires qualification of the participants at the start o f the process (habiltaqh), i s unanimously regarded as a major obstacle and the source o f innumerable appeals. There i s also a consensus to the effect that the qualification requirements are not usually set in accordance with relevant or essential technical criteria relating to the objective o f the tender. Such requirements tend to bypass carefkl analysis and application o f relevant selection criteria in the bid evaluation, thereby impairing the competitive nature o f the tender process. Free access by bidders to all bidding documents, or vistas. The right to view documentation is closely related to the protest mechanism. This right, rooted in the constitutional principle that all documents received by government officials are in the public domain, i s one o f the greatest weaknesses o f the current law. It is strongly recommended that this right be limited by the new law in order to establish the principle o f conjidenfiality duringthe tender process, Le., from the time o f the opening o fbids until the announcement o f the award and the issuing o f a report on the decision. The right to view documentation can be freely exercised thereafter, i.e., once the result has been announced, bidders would have the opportunity to raise objections, without interfering with the evaluation process. The Government recognizes the impact o f the vistas in the efficiency o f the procurement and considers that the adoption o f the procedure o f post- qualification rather than habiltaqBo is a step forward. The WB understands that the right o f review embodied in the vistas information access conflicts with the confidentiality o f the bidevaluation. On the one hand, para. 2.46 o f the WB's Procurement Guidelines and para. 2.28 o f the Consultant's Guidelines establish that after the public opening o f bids, all the information relating to the examination o f the bids and recommendation o f award should remain confidential until the successful bidder is notified of the award. On the other hand, Article 5-XXXIII o f Brazil's 1988 Constitution guarantees the access o f the public or interested parties to all documents in possession o f the public entities. The WB's rule on confidentiality clearly covers the period up to notification o f award but remains silent as to how to handle information about the biddingthereafter. InNCB, in consideration to Articles 3 and 63 o f Law 8,666/93, the WB has generally accepted that the documents o f the biddingprocess, with exception of the proprietary or confidential information (identified as such by the participants intheir bids) may be made available to the interested bidders for examination upon written request after notification o f award. In ICB, the WB is more reluctant to allow the disclosure, even after award, of information pertaining to the examination, clarification and evaluation o f the bids and the whole or parts of the bids. The losing bidders seek, inparticular, access to documents or certificates attesting to the experience and qualifications o f the winning bidders in order BrazilCPAR 7 to challenge those qualifications through administrative or judicial recursas. Although the broad spirit o f the confidentiality o f the proposals may be compromised by allowing competitors access to information on the winning bids, and consequently, the implementing agencies should be encouraged to safeguard and protect the bidding files from outside parties, there is no legal basis inthe WB Guidelines, Loan Agreement or its General Conditions for the implementing agency to refuse an administrative or judicial demand by a losing bidder to look at non-confidential parts o f other bids, inkeepingwith Article 5-XXXIII o f Brazil's constitution. Rejection of bids. The prior qualification phase (habiZtaqZo) is one o f the principal points at which proposals are rejected, for reasons that have little bearing upon the object o f the tender or the real capacity o f the supplier to supply the goods or provide the services in question. However, success in changing this system - which in itself would be a great step forward - cannot be achieved merely by switching to post- qualification. Infact, the post-qualification system has a different philosophy, the purpose o f which i s to assess bidders' qualifications to perform the contract, an approach which appears not to have been fully understood by the reviewers o f the current law. Inorder to reflect this approach, the new law should require specific indicators, such as past performance, access to credit lines, and availability o f key personnel. It is suggested that prior qualification should not be maintained as an alternative. Instead, pre-qualification should be introduced as a procedure to be used in complex cases, where it would be specifically required and regulated by law. The Government finds this view cogent and i s willing to consider such an approach innew procurementlaw. The hiring of consulting services. In order to assess current practices and procedures for hiring consulting firms by the Federal Government, the WB helped to organize workshops in Rio de Janeiro with the main professional associations o f consulting engineers in Brazil (ABCE, ABECE, ABEMI, AsBEA and SINAENCO). The consulting firms would prefer to modify 16 articles o f the 1993 law rather than create a separate regime for hiring consultant firms. The WB supports the efforts by the stakeholders to create a regime for the competitive hiring o f consulting firms for engineering services, architectural, and sector work that is based on a qualification process followed by an evaluation o f proposals through the combination of quality and, to a much lesser extent and weight, price. The Government found this view interesting and is willing to take up the matter inthe preparation o f a new procurement law. The hiring of individual consultants. The existing legal framework makes the hiring o f individual consultants difficult for the Federal Government. As a consequence o f a lawsuit against the Government (Case 1044/2001 in the 150. District Labor Jurisdiction in Brasilia, DF), the Federal Government and the judicial labor authorities reached an agreement through conciliation. This agreement would create conditions for the hiringo f individuals to work in Federal Government projects. These procedures and practices are discussed below (chapter 3, Performance on WB-Financed Projects), as they impact substantially on project implementation. In this respect, the Government stated that it is taking necessary measures to establish a regime for hiringindividuals for project implementation. BrazilCPAR 8 COMPRASNET: transparency and efficiency. The transparency and effectiveness o f public procurement could be much enhanced through increased use of the Internet to publicize business opportunities, download tender documents, publicize and award contracts, and to submit bids. From the WB's standpoint, the scope of the work carried out by SLTI and the Federal Data Processing Service (SEFWRO), and particularly the use of the Internet as a tool in carrying out of procurement, compares favorably with best international practice. The WB would like to register its satisfaction with respect to the cooperation the Brazilian Government is engaged in with other countries, particularly Bolivia, Guatemala, Colombia, Nicaragua and Peru, following up contacts made by WB staff. The WB would like to direct the Government's attention to the need for efforts to increase COMPARSNET system security. From a technical point of view, all data are stored in one place; from an administrative perspective, the I T group is small and in charge of all transactions of the system. In fact, one single person has full access to the system and is able to run any operation in the system. Such a concentration of data and management would impair the WB's acceptance of procurement transactions o f greater value than simple shopping. The launching of the Works Monitoring Portal (OBRASNET) network represents a great opportunity and the WB is pleased with Brazil's partnership with the Inter- American Development Bank in providing guidance and support for this important development. It is the WB's opinion that the progress achieved by SLTI and SERPRO is in line with the general Guidelines developed by the WB on e-procurement. The Government informed SERPRO about the WB's concern and the interest of the WB in piloting the use of reverseauction (pvegiio) as an alternative not only to shopping but also up to the limit of NCB, provided that additional system security measures are adopted. The Government is willing to explore ways of obtaining financial support for any investment required. The Brazilian COMPRASNET is a cornerstone of e-procurement. The WB carried out an assessment with detailed background information and characteristics o f the COMPRASNET as part of the assessmentby the WB of a cutting-edge system providing transparency, economy, and efficiency to government procurement. Parts o f the system will be used as vehicle of WB lending. It is expected that within a few years, once improvements have been made in the security features o f the system, the use of the COMPRASNET system in WB operations will increase. The full assessment is presented inAnnex 2. Strategic procurement. The Federal Government invests about US$5 billion on goods and services annually and severalmorebillions incivil works. Apart from military purchases, there are several fields of the government procurement that may be considered strategic and that would require further development o f the tools and negotiation mechanism to take advantage o f volume purchases. Clearly, software Licensing and the purchase of hardware, consumables, vehicles, printing services and pharmaceuticals would qualify as items that may be subject to special yet competitive pricing arrangements. A case study ofpharmaceuticals, highlightingthe need for the Government BrazilCPAR 9 to address strategic procurement with innovative s,olutionsbased on its high purchasing power, is presented in Annex 5. The Government has responded enthusiastically to this recommendation and is seeking support to develop a strategy to implement the recommendation. The Government is also willing to consider implementingplanningand management tools to deal with the more complex strategic procurement requirements of subnational governments. (iii) Organization andResources (a) Organization Decentralization of the federal procurement function. Procurement by the federal ministries is carried out by purchasing units with sector specialization (called General Coordination of Logistics and General Services); the size of these units varies depending upon the procurement volume of the ministry. The federal autonomous agencies and the support fundaq6e.s and fundos generally have their own purchasing units, while their procurement is carried out by the BiddingCommittees. The two types of purchasing units (ministry and agency) are responsible for (a) procurement planning and packaging, (b) initiation of the processes (numbering, forms, filing), (c) market inquiries; (d) budget availability confirmation, (e) product codification and system input, and, incertain cases, (f) stock and inventory control. Inthe larger ministries and agencies, there may be "permanent" and "special" biddingcommittees, the latter for more complex and specializedprocurement. UN Agency participation in project implementation. Because the federal agencies that implement WB-financed projects feel that they lack adequate tools for project implementation, they have opted to enter into implementation agreements with UNAgencies. They offer three basic reasonsfor this choice. First, the agenciesstate that the ministerial service units, such as legal counsel and procurement units, are overwhelmed by routine activities and cannot give priority to contracting activities for MDB-supported projects. Secondly, other agencies state that the investment programs at the ministerial level are subject to frequent budget cuts and spending limitations that can only be avoided by transferring the resources to the agency early in the fiscal year. Thirdly, the labor laws severely restrict the hiring of project implementation staff, because generally hiring for more than three months of continuous employment would require guaranteeing a permanent position, which is not compatible with the temporary nature ofproject implementation. The WB, recognizes that the participation of UN agencies in project implementation is a constraint in the organization of the procurement function of the Federal Government, as it creates a parallel arrangement precluding capacity building within the core institutions. The WB does not generally oppose the sovereign decision of government agencies to enter into these bilateral cooperation agreements The WB requires that UNagencies follow the procedures inthe loan agreement and the Guidelines and will not finance the service fees charged by UN agencies or insert the amounts, terms and conditions from the bilateral agreements as a service contract in the WB procurement information system in order to trigger disbursements. Pursuant to BrazilCPAR 10 instructions from the Loan Department, the amounts to be disbursed and deposited with the UNagencies against the Borrower's withdrawal application should be determined on the basis o f a six-month expenditure plan acceptable to the WB. In order to collaborate with the UNagencies' role of capacity building, the WB should request concrete actions on capacity building in the action plans prepared during the capacity assessment o f the implementing agencies using UN agency services. The performance o f the UNagencies has been mixed. Some WB borrowers have complained about delays and others prefer to rotate the use o f the services among several agencies based in Brasilia. UNDP is, by far, the UN Agency best equipped to perform this intermediation and support work. Annex 6 presents a review o f issues regarding the participation o f international agencies o f the UN and OAS systems in project implementation activities in Brazil. Creation of a normative body. Brazil has made remarkable progress in the modernization o f the government procurement function and has adopted interesting new features including COMPRASNET. All this change has been made possible by SLTI's leadership. Yet fertile ground remains to be explored in the area o f procurement policy formulation. A new policy-making, normative body would become a pivotal force for the continued modernization o f the government procurement and for advising and assisting state and municipal governments in development o f modern tools for government procurement. It would be responsible for providing a comprehensive and consistent procurement policy, from which the Federal Government would benefit immediately, as would the 27 states and thousands o f municipalities, as they are all users o f the same procurement law. The present opportunity o f revisiting the existing procurement law could be used specifically to designate a normative body within the public administration, with legal venue and normative responsibilities that would include the issuing of procedural regulations, issuing or certifying standard invitations to tender and contracts, harmonizing interpretation relating to legislation, and coordinating training activities. The Federal Government would profit from having a legally constituted unit able to provide leadership for modernization efforts, going beyond the basic regulatory and coordination functions to encompass the equally important areas o f organizing and regulating a procurement system. Establishing such a body would fill the gap in the present decentralization o f the procurement function at the federal level. The Secretariat of Logistics and Information Technology (SLTI) o f the Ministry o f Planning is the lead agency for procurement and develops rules for public procurement. Within the SLTI, staffed with 50 government officials in the area of procurement, the Department o f Logistic and General Services (DLSG) plays an important role in developing procurement systems and regulations. The Secretariat is the second layer o f the Government hierarchy; the Department is in the thirdlayer, as shown inthe ministry's organizationchart (Figure 1). BrazilCPAR 11 I ---- 6RGAOS COLEGIADQS ENTIDADESViNCULADAS Comlss&ode Financiamentos Extern05 ComlWo Nadonalde Csrtograna FUNDAGdS POBLlCAS ComlsseoNacionalClasaificag.lo ComlsrdoNacionalde PoopulS@o -Fundaea EscolaNacionalde e Desenvolvlmsnto -Adminlrlra@o PQblica ENAP .I Fundaqhlnetltutode Pesqui8a -EconbmlcaIn6UtutoBrssiletro Aptlcada IPEA - FundaHa GABINETE - da Geogratiae Esfatistica IBGE - CONSULTORIA - JUR~DICA - ASSESSORIA ECON~MICA SECRETARW EXECUTIVA - - 1 i I SECRETARIADE I DE LOGkSTlCA SECRETARIA SECRETARIADE ASSUNTOS PLANEJAMENTO E tNTERtdAClONAlS ETECNOLOGIA SECRETARIA I INVESTIMEMOS G- DODA PATRIM&HO UNlAO ESTRATPGICOS SECF ARIA SECRETARIA DE DE6 TAO SECRETARIADE ORCAMENTO RECURSOS D E W MANOS Figure 1.Ministry of Planning, Budgeting, and Management: Organization Chart. The function of the Logistics and Service Department (Departamento de Logistica e Sewicos Gerais) consists o f formulating and promoting the implementation o f regulations and guidelines on the management o f materiel, works and services, transport, internal communications, public bidding and contracts for the Federal Government, autonomous institutions. This department also manages the Integrated System for General Services (SISG) through the implementation, supervision and control o f the Integrated System for General Services Management (SIASG). Despite its leading role, SLTI does not fully cover functions that are typical o f a normative body. This gap has been filled in a variety o f ways. The Government view is that the Constitution limits the role of the Office of General Controller (CGU) to issuing general laws on government procurement, and therefore the regulation and compliance o f the procurement function involves other administrative entities, such the State and Municipal Courts of Accounts (TCE and TCM), and Federal Secretariat of Internal Control (SFC). At times, even the State Court of Accounts (TCU) issues instructions on procurement, an activity which i s undesirable. Brazil CPAR 12 The establishing o f a normative entity for procurementwould avoid the dispersion o f instructions and regulations on procurement. The normative body would be able to encourage more strategic use o f the procurement function and oversee the development o f a common framework for the function in the Federal Government. As a regulatory body, it would build capacity to manage procurement through the implementation o f a series o f technological tools, guidance, compilation o f information, performance reviews and guidance on the reform process. All these measures would raise the prestige and quality o f the government procurement to quickly achieve a high-standard, low-risk status and provide a "good practice" example to be followed by Brazil's states and municipalities. Brazil has adequate experience with regulatory bodies for many public services, such as telecommunication, water resources, energy, and transport, all o f which have well structured regulatory bodies. Public procurement appears to be a suitable function to have a normative body in charge o f creating and updatingprocurement rules not detailed inthe legislation, providing the official interpretation o f the rules and norms, fostering training of staff and proper career development, and overseeing and guiding government agencies when the needs for interpretation arises. In Brazil, activities o f such a normative body could also include developing systems, seeking civil society interface with public procurement, supporting the anti-corruption initiatives and control activities, and leading participation ininternational initiatives. In order to assess the functions o f regulatory bodies in procurement, the WB facilitated a knowledge-sharing event, gathering representatives from six different LCR countries to debate the advantages and disadvantages o f creating regulatory procurement agencies. The outcomes o f this regional conference are presented inAnnex 7. Inaddition to the countries that participated in the regional conference, the WB i s familiar with two good European examples o f normative bodies, the Office o f Government Commerce in the UK and the Polish Public Procurement Office. To ensure the effectiveness and leadership o f such a nonnative body in Brazil, the WB would suggest that its head be competitively selected on the basis o f proven qualifications and experience in public sector management and hired on a fixed-term service appointment. In order to understand how these functions might be better performed, the Government i s interested in hosting further meetings and workshops with the entities presently involved inthe normative function (SLTI, CGU, TCU, TCE, TCM, SFC) and in seeking legal views on establishing a normative body. (b) Resources The Federal Government o f Brazil has 830,000 active employees, o f which 30,000 carry out government procurement on a full- or part-time basis. However, a government procurement career stream does not exist and, except for the head o f the bidding committees that receive remuneration for their temporary function, there are no incentives or additional compensation for procurement skills in government positions. Actions should be developed to strengthen the performance and skills o f the staff who handle procurement. The staff turnover in the procurement function is high. Due to the BrazilCPAR 13 lack o f a structured compensation package, there is a wide range o f salaries among jobs o f similar responsibilities. High-level employees receive "supplements," representation, and other payments that can double their nominal salaries, further distorting the levels o f compensation. In general, the salaries o f mid-level professionals in Government are low when compared to those inthe private sector. The Government o f Brazil should find ways to retain talented civil servants to do procurement work. One effective incentive would be the establishment o f a MBA program on government procurement. The MBA is not the only measure that would support the professionalization of the procurement career. The Government is willing to adopt a certification mechanism based on the successful completion o f a curriculum tailored to the responsibilities o f the various jobs. At the outset the program should focus on short local and external courses on the new law and modern procurement practices, in particular e-procurement. In the medium term the emphasis should be on promoting and supporting the modernization of existing basic courses and the development o f advanced courses usingthe many local universities and other learning institutions. Continuing education. Continuing professional education is critical for procurement performance, yet the development o f human resources specialized in public procurement i s one the most neglected areas for ongoing training. Procurement policy is the least explored area o f public management. It is also a systemic policy - like human resources policy - that needs to be addressed appropriately so that it can be improved in accordance with other public sector reform efforts and with rapid changes in technology that challenge all public and private entities in today's society. Given the increasing recognition o f the importance o f staff qualification in this area due to the greater complexity o f transactions between government and society, as well as among government entities, it will be necessary to invest in the professionalization o f procurement staff with more structure and depth. A general framework is needed for medium-term institutional capacity building for a professional labor force to work on government procurement at the federal level. `A post-graduate program offers a deeper level of education and creates sub- products - networks, think tanks, publications - that further contribute to improving the quality o f the staff involved in these activities. Such a program, coupled with a certification program for public officials involved in procurement would enhance the prospects o f a procurement career in government. The WB finds that a Government- sponsored MBA program on procurement management would increase the level o f interest and incentives for talented staff within the Government to join a procurement career stream. Graduates o f such a program would have greater a chance o f becoming procurement managers who would be equipped to help modernize the procurement function. The path to the professionalization o f careers in procurement in the Federal Government requires more than incentives at the top. In Brazil, there are a number o f incipient formal education programs for specialization courses in procurement. The WB recommends that conditions be created to provide support for all such efforts, with a view to fostering market conditions and making these programs viable. MBA programs with a BrazilCPAR 14 major in governmental procurement should encompass: (1) tender systems; (2) planning o f procurement and supplies; (3) ethics; (4) legal and institutional systems (laws and regulations); (5) project financing and accounting; (6) materials management; (7) statistics; (8) international trade; (9) e-commerce; (10) procurement financed by multilateral agencies; (11) regional integration agreements (European Community, Free Trade Agreement o f the Americas (FTAA), Southern Cone Common Market (MERCOSUR); (12) concessions; and (13) control systems. At the time o f preparation o f this report, the Bank was evaluating Government's request for the WB to support the launch o f an MBA program in Government Procurement with an IDF grant. The CPAR studied the possibility o f creating such an MBA program within the National School o f Public Administration (Escola Nacional de Administraqdo Publica - ENAP) and found that the demand exists. The WB i s confident that the program will attract the necessary level o f enrolment to achieve sustainability inthe market. Government i s interested in studying and developing initiatives in the development o f human resources. The Government view i s twofold: (a) the training o f procurement officials should be broader than post-graduate studies and should equip the Government with cadres able to manage effectively the whole cycle o f logistics and materiel control; and (b) training programs should go beyond increasing skills o f staff working inprocurement and should develop skills inall the operational, strategic, control and implementation levels of the Government procurement function. Accreditation of officials. The Government performs its functions through public services that generate continuous funds disbursements under contracts and other kinds of agreements. These payment activities generally fall under the responsibility of technical and administrative staff whose level o fprofessionalization i s very low. In 1996, the WB recognized that it was confronting similar difficulties in discharging its fiduciary responsibilities and decided to establish a certification program in order to increase the quality o f procurement-related work and the accountability for procurement decisions. The WB would like to suggest that Government adopt a similar type o f certification program for federal staff working on procurement. Such an accreditation program could be implemented gradually over the next five years. The parameters for accreditation would be established by the normative body. After the accreditation program was established, the chairperson o f the bidding committees would need to be fully accredited and the members o f the biddingcommittees would need to be partially accredited. Annex 8 presents an example o f qualifications for a fully accredited official. Most o f the requirements could be achieved through continuing education programs. A government school like ENAP or the Finance Management School (Escola de AdministraCdo Fazenduriu - ESAF) could host programs offering the courses needed to achieve the certification program. In 2003, the state o f Bahia initiated steps towards the accreditation o f its procurement staff. The Government found this program interesting and is willing to The new accreditation policy was announced by the State Govemment o f Bahia and its partner, the Luiz Eduardo MagalhBes Foundation (FLEM), at the Third International Govemment Procurement Seminar, heldat the Parlamento Latino Americano, S b Paulo, September 16-18,2003. BrazilCPAR 15 study the legal aspects and ways to implement the idea as an incentive to procurement staff, without creating a special civil service job category. Training. Procurement training needs to be an ongoing, permanent activity. The WB would be pleased to share experience acquired in the fields of management, supervision and control relating to its loan operations inorder to provide examples o f the challenges that these tasks entail. With a view to providing support for the achievement o f satisfactory disbursement performance under the WB loan portfolio in Brazil, estimated at approximately US$SOO million per year, the WB and the Foreign Affairs Secretariat (SEAIN) currently provide training in tender procedures for roughly 200 trainees from the public sector each year. In the WB's view, this number i s very small. Furthermore, the agencies responsible for signing administrative contracts with the bodies that inspect and supervise the management of these contracts should also be adequately trained to enable them to follow the rules that apply to public procurement financed by the multilateral institutions that provide a major share o f public sector investment. At the very least, it i s recommended that auditors be trained to a level at which they are capable o f issuing adequate decisions with regard to the methods, modalities, and variations that are accepted under current Brazilian legislation and under the requirements o f the Loan Agreements. Agencies implementingprojects financed with external resources should receive periodic training so as to enable staff to recognize the different ways inwhich tender regulations are applied. Greater efforts should be made to provide training for staff o f the Federal Secretariat o f Internal Control (SFC) and the Courts o f Auditors o f the States in order to train them to identify the differences between international and local procedures and effectively audit procurement financed by MDBs. The organization and coordination o f such training activities should be among the principal functions o f the proposed normative body for procurement. One o f the essential aims o f training programs inpublic sector procurement i s to provide certification for the participants. It i s the WB's opinion that conditions in Brazil are propitious for setting up a hierarchical authorization system whereby public employees are accredited to sit on tender committees and assume key functions in public tender processes, similar to the program developed by the Government to certify auctioneers. Over time, the proposed normative body would require that members of tender committees be accredited. The new law should provide for this new accreditation system and indicate the body responsible for issuing such certification. BrazilCPAR 16 Number of Audits carried out by SFC on foreign cooperationand lendingSourceDGREXSFC 02 03 IBRD BID PNUD JBI CC OTHER Figure 2. Number of audits carried out by SFC on the use o f external funds. Likewise, the Prosecutor's General Office (Ministkrio Publico Federal-MPF) can play an important role inthe investigation and prosecution o f fraud and corruption in government procurement. The WB would welcome MPF initiatives to strengthen the MPF school and other initiatives for specialized training for high-level prosecutors (procuradores) in information systems and technologies that would increase their effectiveness. ProfessionalAssociation. In 2000, the I-ADB, UNDP and the WB helped to create a professional procurement association o f high-performance staff in government procurement. This professional circle was composed o f about 24 professionals responsible for procurement for many government projects and several institutions based in Brasilia. The circle carried out several knowledge-sharing activities and is in the process of establishing itself as a formal organization. Formation o f this group was praised by the I-ADB General Auditor as one o f the best practices for capacity building in the LCR region. UNDP and the WB offered financial support at the outset o f the group's establishment. It i s possible that the group will host the first international seminar of procurement practitioners in 2004. This professional association should continue to be a prime initiative in capacity building and leadership for the professionalisation o f the procurement career stream inBrazil. Standardbiddingdocuments andcontract forms. The lack ofnational standard tender documents i s a cause o f delays in government procurement. It i s both cumbersome and expensive for customary suppliers to submit proposals under differing tendering conditions. WB borrowers that have standardized bidding documents report that they have achieved significant price reductions for goods and services procured. The WB recommends that the Government devote greater attention to the development and adoption o f standard bidding documents (SBDs). The Foreign Affairs Secretariat (Secretaria de Assuntos Internacionais - SEAN) o f the Ministry o f Planning has Brazil CPAR 17 embarked upon the development o f SBDs for use in externally financed projects, and these could serve as a basis for more comprehensive standardization. One important activity in the preparation o f bidding documents is the assessment o f the financial capacity o f bidders. To maintain a staff capable o f updating such biddingdocuments is as important as their creation. Among the principal tasks o f the proposed normative body would be consultation with the private sector during preparation o f such documents, training in the use o f SBDs, and the dissemination o f the SBDs once they have been produced. The Government acknowledges the benefits o f standardizing bidding documents and reported that progress had been achieved in certain areas since 2002 with the financial support o f I-ADB. (iv) Audit andAnti-corruption measures The public perception i s that corruption is ingrained in Brazil's public sector. In the eyes o f independent observers, Brazil has made little progress in fighting corruption. Infact, Brazil has made important steps to systematically combat corruption. Inorder to combat corruption more effectively, the Government created the Office o f the Controller General (CGU) through Medida Provis6ria no2.143-31, of April 2, 2001, and then by Law no 10.539 o f September 23, 2002,, reporting directly to the Presidency of the Republic, with a mission to provide due diligence for complaints on corruption in the Federal Government. Subsequently, the Federal Secretariat o f Internal Control created in 1994 under the Ministry o f Finance (SFC) was merged into CGU to give it hrther independence from the ministries. In July 2002, Brazil ratified the Caracas Convention (Inter-American Convention to Fight Corruption). The evidence in public records shows that the CGU received more than 6,000 complaints o f irregularities since its creation, resolved2,680, is investigating 2,233 and is seeking additional information regarding 1,087. The annual report of CGU points out that it acted actively in the cases that received ample coverage in the media (former Directorate o f Highways, the Brasilia Engineering Company and the former Development Agencies o f the Amazonas and Northeast). These appear to be big numbers; however, there are more than 800,000 Federal Government employees in Brazil, o f which more than 30,000 carry out government procurement functions. More details about the CGU annual report and the resolved cases may be found at http://www.Presidencia.gov.br/cgu/. In 2002, the SFC carried out 15,300 audits and reviews - 4,000 actions in support of TCU and reviews o f donor grants and loans distributed as presented in Figure 2. Regarding internal and external audit, the CFAA report for Brazil states that "both SFC and TCU appear to function adequately as professional audit institutions," although some issues need attenti~n.~The procurement reviews carried out by SFC under WB- financed projects are consistent with good independent procurement review practices. There are several cases in which the audited institutions were required to reimburse the The CFAA may be found on the WB internal website at httv://o~cs.worldbank.ordFMldocuments/ CFANBrazilCFAA2002.pdf. The CFAA was preparedby DavidShand, WB Financial Management Advisor and Task Manager; Patricia de la FuenteHoyes, Financial Management Specialist BrazilCPAR 18 project account for small expenditures considered by SFC to be wrongly procured, Le., less than three quotations inshopping or direct purchases. The CFAA stated that, in addition to the comprehensive report o f the President, the annual reports prepared by each o f the 1,100 federal entities contain an audit opinion from SFC. The CFAA stated that these annual reports are technically not publicly available, but can be obtained under Brazil's Freedom o f Information Legislation if desired. The annual reports are forwarded to TCU for review o f the financial statements. The reports include a report on activities prepared by management o f the organization and a certification by SFC on financial statements, legal compliance and efficiency .The CFAA indicatedthat TCU then has 18 months to prepare its report to Congress, although inpractice it may take longer. The review o f TCU by the CFAA showed that "TCU has approximately 2,000 staff, although it considers it needs about 600 more to fill gaps in its work. Currently 900 are analysts and 1,100 are technicians, although o f these technicians, 800 are only partially involved in audits and investigations. All TCU staff are regular civil servants, recruited through a competitive process. TCU operates in a relatively decentralized way, with offices in 26 state capitals, as well as Brasilia." Regarding SFC, the CFAA stated that "staffing o f SFC is currently around 1,400 but it has assessed its needs as around 3,500. A recent request for an additional 200 staff was approved and it anticipates that next year another 200 will be approved, moving to a total staffing of over 1,800. SFC's staff are regular civil servants and its budget is established inthe same way as for other administrative units. However it has extensive operating autonomy and the legal right o f access to all available government information it needs to carry out its functions. Its operations are decentralized through 26 regional management units, although all work planning is carried out inBrasilia." In sum, the Government has set up a working internal and external auditing and anti-corruption mechanisms that should continue to be supported b y the WB by means o f sharing information, training and specialization o f staff in investigative techniques, collection o f evidence, improvement o f civil society control mechanisms, establishment o f a network o f information, enabling the different levels o f public prosecutors to exchange information and technology, and follow-up and monitoring o f the prosecution by the relevant judiciary authorities. The Government expressed interest in expanding this partnership to include anti-corruption measures regarding government procurement. One example is the adoption o f a code o f ethics in the procurement function. Annex 10 presents and example o f a code o f ethics. (v) Public Sector Management Performance Procurement Planning. In 2002, the Federal Government attempted to hire a consulting firm to develop a procurement planning module to be used by the ministries and agencies listing common goods and services that are procured in the course o f a normal fiscal year. The Government prepared the terms of reference and sought the collaboration o f the I-ADB to finance the services. The firm was not hired due to difficulties inthe biddingprocess. BrazilCPAR 19 The budget planning process, albeit rigid, i s a respected discipline in the Federal Government. This planning capacity and discipline should be brought into the procurement function through the adoption of a procurement planning tool. The implementation o f this module, particularly ifmade available through COMPRASNET, would be a very useful tool that would greatly improve the performance and quality o f public sector procurement. Untilvery recently, less than 50% of the government procurement followed truly competitive procedures. Public bidding (concorrzncia) and reverse auction (pregiio), accounting for 37% and 4% o f government procurement respectively in 2001, are the only types of procurement that are truly competitive. Total procurement o f goods and services was US$ 4,000 million for 2001 and total procurement o f sundry items for administrative fimction, US$3,200 million. The profile of government procurement in Brazil for 2001 by procurement instrument i s shown inFigure 3. I Fig.3 GovernmentProcurementin 2001 Figure 3. Share o fpublic sector procurement by procurement type, 2001. In order to increase the share o f procurement following competitive procedures, the Ministry o f Planning undertook a modernization process, including expanding the use o f pregGo and introduction of other new procurement procedures designed to speed up and simplify the processing. Reportedly, the use o f pregiio has resulted in savings estimated at 25% o f the cost. In the last two years, rapid progress was achieved and the use o f pregiio has increased from US200 million (about 4% o f government procurement in 2001, with savings o f US$50 million, to US$315 million through April 2002 (4,228 pregiFo operations). It is projected that pvegiio will be used for 40% o f total government procurement purchased through competitive procedures representing US$600million/year. BrazilCPAR 20 Figure 4 presents the distribution o f the general expenditures o f the Federal Government in 2001. The Federal Government started a state reform program in 1995 following two guiding principles: de- bureaucratization . . simplification. In order to - FederalGeneral achieve these objectives, the Expendituires reform included actions aiming at making use o f information technology in - public InWTelec Services by administration. The Ministry o f Planning (MP) i s responsible Unskilledlabor for the coordination in the use o f the information technology. As the MP is also responsible for the budget, organization o f the government, human resources management and Source: MPISLTI government procurement, the 3% The immediate benefits o f the modernization o f public services and functions include greater transparency, increased business opportunities, and lower prices. In the view o f the WB, these benefits appear to be inplace through the actions inthe new model o f government procurement which kicked off in 1999 with COMPRASNET. Two new procedures for buying goods and services for the government units are in place: pregiio and electronic purchase. The WB should support the use o f pregiio as an alternative to shopping. Additional security measures should be added to COMPRASNET for the WB to consider usingpregzo for procurement valued above the threshold specified in each loan agreement, as an alternative to NCB, as mentioned above. The Government considers that planning should be a key feature for the increased efficiency and cost reduction o f government procurement and has requested assistance from the WB in developing methodologies, strategies and advanced tools for the planning on procurement. Vulnerability. Civil works represent about one third of Federal Government procurement volume. The regime o f contracting civil works under the law is very important, as it affects hundreds o f millions o f investments at the state and municipal level. Civil works are also deemed to be the type o f government procurement most vulnerable to corruption and bribery. A study carried out in early 2002 by Transparencia Brasil and the firm Kroll revealed that o f 92 private sector companies interviewed, 26 BrazilCPAR 21 participated inpublic biddingand 12 firms say that they were requested to provide bribes. The firms stated that these requests occurred most often at the state level8 In view of the heightened importance and greater vulnerability of civil works procurement to corruption, the WB consulted the heavy construction industry to learn their concerns about the public procurement regulations and public sector performance. The WB reviewed the views contributed by the construction industry and concur with the industry's view that the procurement o f goods, services and works should be harmonized. In particular, if a law for goods and services is approved separately for reasons o f urgency, after a short learning period, the Government should make an effort to consolidate the two separate regimes into one single body o f law. The views o f the industry andthe WB's assessment are presented inAnnex 9. The Government agrees on the need to discuss further the issues regarding civil works inthe context of procurement law reform. Contract implementationin Brazil is frequently delayed (six months to a year is common) for a variety o f reasons including deficient and incomplete specifications, unrealistic completion periods, delayed access to the construction site, uncertain hnding and payment delays. Most o f the deficiencies are attributed to poor planning and inadequate contract management. The existing procurement law contains many regulatory clauses related to contract implementation; these regulations, even when reflected inthe contracts, are usually deemed to be difficult to apply. Some agencies have developed their own contract conditions to meet the requirements o f the national regulation. Ingeneral, the contractual conditions used for the procurement o f civil works and goods are fair, but they are usually too general to cover specific critical aspects o f the contract scope and implementation o f the contract itself, when compared to internationally recognized contract conditions, such as those o f the International Federation o f Consulting Engineers (FIDIC) for civil works, or even the standards issued by the WB for the purchase o f goods. Annex 4 offers a view on the content aspects o f model bidding documents that the WB and other MDBs consider adequate for government procurement. The control entities in government, the media and civil society-NGOs working on transparency and anti-corruption-frequently express concern about civil works contracts that are incomplete and that present irregularities. As an example o f such concern, the annual budget law includes the list o f works under scrutiny requiring special monitoring and supervision. This task is assigned to the Federal Court o f Accounts (TCU), which has a system in place to monitor works reported as problematic. Data about inspections, visual site records and reports are posted on the web at httD://www.tcu.Pov.br. Currently, there are 126 works listed as part o f the special supervision program 35% o f which are highway projects under the National Directorate o f Transportation, which i s a traditional client o f WB lending. With respect to contract management, many of those interviewed said that the law was o f no help, since the compulsory clauses it requires tended to be excessive or inapplicable. Contracts ought to be standardized and more complete, and describe in *See http://www.transparencia.org.br/tbrasil-ie.asp BrazilCPAR 22 greater detail specific aspects relating to the expected outcome o f the contract. The procedures for application o f penalties are overly bureaucratic and the guarantees are hard to enforce. Interviewees expressed the view that the law ought to include clauses providing more streamlined mechanisms for the settlement o f disputes, such as administrative intermediationand arbitration clauses. The Government seeks the support o f the WB to develop methodologies and tools to manage complex contracts. Variation orders. Other common problematic features in contract implementation are excessive number and questionable justification o f the variation orders and cost overruns. The law prescribes a maximum percentage for quantity increases (25%). A large number o f contracts use that amount with minimaljustification. In parallel, there is also evidence o f over billing, especially in civil works contracts, where bidding documents include the contracting authority's cost estimate. In some instances, the over billing i s outright fraud. However, cost overruns are not always unjustified. Frequently, they are due to incomplete design specifications and incorrect contract estimates at the time o f bidding. The Government i s o f the opinion that the .percentage o f variation and other issues regarding justification o f variations should be part o f the formulation o f the new procurement law. Supervision. In order to add transparency and improve supervision, the Government i s developing a Works Monitoring Portal (OBRASNET), which will include a database o f costs, progress reports o f works, site photos, and material regarding civil works implemented by the Federal Government based on information available in the TCU and in the Government Development Bank (CEF). CEF's Urban Development unit maintains a public database, the Urban Works Information System (SIURB) that covers works financed under 30 Federal Government programs. These initiatives to modernize the supervision and accountability o f contract management, where a substantial part o f past abuse took place, are a clear and direct demonstration o f Government's policy to prevent corruption. Materiel management. Brazil has a tradition o f good materiel management inherited from the military government administration, and also favorably influenced by the achievements o f the oil, energy and former telecommunications state industries, which developed advanced information and management systems for their inventory and supplies stock. The Ministry o f Planning took up the responsibility o f further refining the classification o f used by the supplies. A few years ago, Brazil reached agreement with the NATO Supply Administration to use their catalog system. Brazil is now classified as a Tier-2 in the NATO system, giving Brazilian firms the right to register Brazilian-made products, including defense materials thus allowing the sale to NATO member countries. On the public sector, non-military side, more than 50,000 items are already classified inthe National Catalog System, based on a similar to NATO classification. Ina fiu-ther step towards the standardization o f products, MP and the Ministry o f Defense will integrate their own purchasing systems with SIASG, adding transparency, efficiency and economy to government procurement. MP launched the use of the catalogs for materials and services through its Ministerial Decree No. 3 o f October 29, 2001. The use o f the BrazilCPAK 23 catalogue would allow the comparison and evaluation o f prices quoted for the same product to different Government agencies. The WB should support the national classification system, along with its dissemination, monitoring and evaluation. B. Performanceon WB-financed Projects (i) Decentralization The service procurement function in the Country Management Unit (CMU) o f Brazil is decentralized in conformity with a memorandum issued by the WB's central procurement policy office on September 16, 1998. The C M U maintains an internationally recruited senior procurement specialist who mentors and coaches national staff. About 50% o f the procurement actions for WB operations are examined and commented on in writing by the WB field office inBrasilia. The WB should seek to increase the degree o f decentralization, with a goal o f handling 90% o f procurement actions locally within the next five years. Government has assigned responsibility for the supervision o f MDB lending to the Foreign Affairs Secretariat (SEAIN) o f MP. SEAIN considers that continued training i s indispensable to ensure the implementation o f projects and has designed a training package with WB support that has proven to be effective. SEAIN seeks the financial support o f the WB to ensure the sustainability and to scale up this training program. In the last two years, SEAIN has invested more than US$lOO,OOO o f its own funds in the training program in financial management and procurement. (ii) Thresholds for Procurement Methods, Prior Review and Standard Disbursement Percentage Part o f the scope o f this assessment is to define the thresholds that would apply for the choice o f procurement methods in Brazil. In addition, the report offers thresholds for prior review, as well as the percentage for financing consultants' services In accordance with para. 2.7 of the Guidelines: Selection and Employment o f Consultants by World Bank Borrowers, shortlists for consulting assignments may comprise entirely national consultants, ifthe estimated contract amount i s below a certain dollar ceiling. The ceilings will be established in the loan or credit agreement and will consider the nature o f the project, the capacity o f national consultants, and the complexity o f the assignment. However, the ceilings should not exceed the amounts defined below for each country. These amounts have been determined by the Operations Procurement Review Committee (OPRC) o f the WB. This review confirms that the choice o f US$500,000 as the ceiling for the national consultants is consistent with the capacity o f the national industry inall sectors o f the WB portfolio activity. This review concluded that in Brazil the thresholds for prior review specified in a memorandum issued by the WB's central procurement policy office on July 15, 2002, as shown below are consistent with the overall capacity assessment o f the Federal Government. N o adjustments, particularly involving reductions, appear to be justified unless particular deficiencies become apparent in the individual capacity assessment o f BrazilCPAR 24 implementing agencies. The current thresholds for prior review are different for implementing agencies indifferent risk categories, as shown inTable 1. Table 1. Prior review thresholds for Brazil government agencies implementing WB-financed projects. ~ Type of Procurement High-risk agencies Average-risk Low-risk agencies agencies Goods US$l0 m the same for all projects?How long have they been NCB works =US$500k - 10m 3 Quotationsfor small works < US$ 500k ICB goods> US$500k NCB goods = US$ 100k-500k Shopping< US$ 1OOk The prior review thresholdsdependupon the risk ofthe implementation agency as establishedinthe individual capacityassessment.Mostprojects inBrazil are classified as average risk; the thresholdsfor prior review for average risk projects shouldnot exceed: $500,000 for goods, $5 million for works, $ 350,000 for consulting services with firms and $100,000 with individual consultants The independentaudits are camed out bythe Secretaria reports indicate significant procurement problems? Federalde Controle Intemo. They havereported Have any cases o f misprocurement occurred? difficulties ofthe Clients conducting shopping.The Describe. independentprocurementreviews (IPRs) carried out by the WB revealthe same. The more recent misprocurementwas detectedby the WB underthe AIDS IProiect Have procurement issues caused serious Projectsare generally subject to extensionsand delays implementation delays, cost overruns, disbursement but the delays are more relatedto lack ofmobilizationof delays? Describe. local counterpart financing thanprocurementissues. Does the WB receive a large number o f complaints The WB receivesabout ten complaints on procurement about procurement procedures andor selection every year. Most ofthem concem the differences decisions inthe country? betweenthe local law and the WB procurement rules for ICB and the qualification requirements. There are delays inthe bid evaluationand award recommendation.Generally,the bidvalidity ofthe participant biddersneedto be extendedtwo or three months to completethe award. A position ofthe WB inrespect to the issue ofthe confidentiality ofthe bid evaluationinNCB shouldbe resolved. I s there a reasonably well-developed private sector Yes. which freely trades goods and procures works and other services? BrazilCPAR Annex 1 Does the private sector compete actively in Yes. With a GNP of US$493 bi in2003, Brazil's opportunities advertised by the government? I s this economy is the fifteenth largest economy of the evidenced by number of bids/proposals received world. The country has highly developed civil when open competition is sought? works and consulting industries, along with automotive and other industries. The size of the economy is reflectedinthe numerous bidding opportunities available inthe market. Do private sector companies feel comfortable in Yes. exercising their right to complain or seek remedies under the public procurement system (to the extent the systemprovides for this right)? What is the performance record of private sector Contract amendments are a very common practice, companies on government contracts? (Is there though limited to 25% o f the initialprice. There are evidence of deliberate under pricing, poor numerous reports of excessive price increases after performance on government contracts or excessive contract award duringperformance. price increases after contract award during performance)? I s there evidence that private sector companies are Yes. However, qualification requirements are over- aware of requirements and have the capacity to detailed and preparation of bids is too complex, submit acceptablebids/proposals (Le. understand leading to rejection of a number of bids for minor the system)? Are many bids/proposals rejected for formal non-compliance. procedural reasons? Has there been any experience with private sector Very little. Infact, only operation and maintenance contracts for the provision, operation, maintenance of some infrastructure(no provision), except for of infrastructure for various public services telecommunications. (BOO/BOT/BOOT/etc.)? Describe. Do private sector companies have access to No. Interest rates are too high inthecountry, due tc commercial loans at a reasonable interest rate? economy pressure. Are bonds commonly used? I s so, is there a Yes. Susep (Superintendencia de Seguros Privados) regulatory authority overseeing the activities of is the regulatory authority. bondingcompanies? I s there a mechanism to suspend companies that have not honoredtheir obligations to pay or execute bonds? I s there a satisfactory track record o f calling of bonds? SECTIONH EMERGINGAREAS OF INTEREST - Goods and services of common useby the military procurement systems laws and regulations? Briefly are purchased inaccordance with the same statute. describe coverage and exceptions. Goods and services for military use are not subject to public bidding.There is a National Security Council that reviews and approves major contracts, analyzing thejustifications prepared by the competent military authorities. Brazil CPAR Annex 1 Does the public procurement systemand Yes. Infact, the Government has developed a accompanying control environment (including the number of very serious measures towards this kmd financial accountability system) control the flow of of control, allowing a number o f actions involving funds so as to ensurethat funds budgeted for valid public attorneys, Central Bank etc. Italy is expenditures are not diverted to finance illicit constantly cited as inspiration for the model being activities (e.g. money laundering, terrorism)? developed inthe country. Does the country have policies aimed at promoting Inthesis, the environmental and social controls may environmentally and socially responsible be freely exercised duringthe biddingphase. As the procurement? Briefly describe coverage or biddingdocuments are openedto questionsby any initiatives that will contribute to suchprocurement citizen, the presenceor absence, for instance, of necessary environmental licenses may be raised at any moment by virtually any person. That, along with (i) the mandatory advertisement of any bidding, including description of the scope of contract; and (ii) needto promote public the audiences (Art. 39) whenever the estimatesexceed 100 % the threshold for concorr6nciapublica, may be deemedto allow environmentally and socially responsible procurement. Brazil CPAR Annex 2 COMPRASNET is a universal public-access system developed to publish information on SIAFI: Sistemade Administraqb Government procurement and to carry out Financeira SIASG: Sistema Integradode pregzo sessions. As an e-gOVernment system, it Administraqiio de ServiqosGerais was designedto meet three main objectives: (a) SICAF: Sistemade Cadastramento to broaden participation in government Unificado deFomecedores procurement; (b) to 'peed government SIREP: Sistemade Registro de Preqos procurement and make it more efficient by CATMAT/CATSER Catalogues InBrazil, "structuring systems" are a group of integrated IT systems connecting budget (SIAFI), procurement and general services (SIASG), tax and the social security status of suppliers (SICAF), and history of prices contracted by the Government (SIREP) among others. There are other systems comprising the national structuring systems but for this report SIAFI, SIASG, SICAF and SIREP are the only ones mentioned. All structuring systems have a huge database and run on mainframes with Adabas or IBM DB2 databases. All procurement processes and contracts are registered in this group of systems. For instance, all reverse auctions start at SIASG when the auctioneer creates a pregiio session. To sign a contract with the Brazilian Government, a supplier ought to be registered at SICAF which will check whether he has any pending issue with the Tax Department. After the award of apregiio is made, it is necessary to register it at SIREP before the award becomes a contract. Therefore, COMPRASNET and pregzo interface with the structuring systems. Preglo is the main feature of COMPRASNET website and consists of a transactional reverse auction system that can be done either electronically or lively, with physical BrazilCPAR Annex 2 presence o f bidders and an auctioneer. On its early stage, the implementation o f pvegiio produced impressive outcomes in terms o f speed and savings, which boosted the procedure to the level o f a model for Government procurement. Initially, the use o f pregzo as a procurement method was legally restricted to the federal sphere. Nevertheless, the system became so popular that States and Municipalities developed their own reverse auction systems which were used for very small acquisitions for which the national procurement law does not require a competitive method. As it will be further explained, Law 10.520/2002 (an amendment to Law 8.666/93) expanded the use o f pregGo systems for all Government levels. Recently, the Ministry o f Planning developed an `electronic shopping' system that it is very similar to apvegiio session, except for the fact that bidders do not send a written proposal prior to the reverse auction session. At the indicated date and time, bidders log on to the system and offer their bids for the proposed contract. An electronic shopping is not advertised; the system sends an invitation by e-mail to all registered suppliers for the goods or services being procured and for the region o f delivery. Since Brazil is a very large country, when registering in COMPRASNET, suppliers indicate their areas o f business and the geographic area they would be willing to supply. This information i s used by the system to generate the list o f invitees for each relevant electronic shopping. This method is used for those acquisitions which the Brazilian ProcurementLaw does not require a competitive process; which are very small purchases up to US$2,300 equivalent. More than 70% o f the transactions o f government procurement fall below this threshold. There i s no auctioneer in an electronic shopping process. It i s fully handled by a computer system. The first legal regulation on pregiio was issued on July 2000 creating the use o f the reverse auction as a government procurement method for the federal level at that point. The Decree ruled that pregiio could be used for the procurement o f readily available off- the-shelf items ("usual" goods and services). Therefore, the use o f the method was not linked to a value threshold but rather to the type o f goods and services being procured. Further, the Decree typified "usual" goods and services as being those that can be easily and objectively defined in bidding documents through current specifications available in the market. The objective was to extend the use ofpvegiro for procurement o f very simple items and services, such as bottled water, fuel, consumables, cleaning materials, security and cleaning services, among others. Decree 3.555 o f August 2000 lists which goods and services meet the criteria o f "usual" goods and services. This Decree was further complemented by Decree 3.784 that allowed the use o f pregzo for procurement o f computer workstations, notebooks and printers. These simple goods and services o f small unit cost represent the largest bulkof governmentprocurement inBrazil. The Ministry o f Planning estimates that more than 70% o f the procurement processes fall into these criteria. A pregzo session can take place using the web or in a public meeting with physical presence but the goal is to maximize use o f IT and the web; therefore, the law was designed to meet that goal, a procedure that reduces substantially the request o f certifications and other documentation. The law does not allow the request o f bid securities which would be a great limitation to the I T approach. However, Law 10.520 BrazilCPAR Annex 2 prescribes a tough penalty for those that fail to sign the contract - five-year blacklisting. Duringthis period, the supplier is forbidden to make deals with the Government. COMPRASNET i s a module o f the federal system SIASG (Sistema Integrado de AdministraqZo de Serviqos Gerais - Integrated Management System o f General Services). The website offers services for government officials and suppliers, and publishes information o fpublic access, such as legislation and manuals. The first link that calls the attention o f the visitor is services offered by the website. There are three options under this link: (i)services for government officials, (ii) services for suppliers and (iii) extra services. The item services for government officials can only be accessed by government officers and opens the door to the following features: a discussion forum, a query to prices contracted by the Government, a management module o f SIASG which i s used to append biddingdocuments, create pregiio sessions, issue amendments. This link allows the official to download the catalogue o f goods and services, search for bidding documents, include and update the section o f news, electronic and presencepvegiio, and a query to identify those bidders that have already purchased the biddingdocuments. By the time o f the assessment, there were four packages of services available to suppliers: one free o f charge and all other three subject to payment o f a fee. The free package requires the supplier to register itself on COMPRASNET website. The registration is a condition sine qua non to participate in electronic pregiio and electronic shopping. By registering, the supplier i s granted access to SICAFWEB (the federal supplier database) and is therefore able to consult its status with the tax department. The free access package allows the supplier to receive by e-mail invitation to submit quotation on electronic shopping. There i s also a discussion forum and a list o f suppliers that have been contracted by the Government along with their field o f business. There are 150,000 suppliers already registered. Since the withdrawal o f the private sector partner, all the services furnished by Comprasnet became free o f charge. COMPRASNET began its operation on 2001; inthe first year it did only 318 pregdes. As o f September 2003, the website held more than 12.830 preg6es and reported savings o f 25% compared to the estimated price as entered by the auctioneer at the time o f the creation o f apregiio session in the system. According to the Government, auctioneers prepare the estimated cost based on previous similar contracts consulted in SIASG. The implementation o f COMPRASNET IT solution counted on the support o f a private sector joint-venture. The private partner was selected on a competitive basis, through an open public bidding. The role defined for the private partner was the supply o f necessary IT hardware and software for the set up o f the system. To compensate for this investment, the partner would profit on the services sold through the website. This partnership ended inDecember 2002. As o f September 2002, the system was unable to receive foreign participation because registration at SICAF is a condition sine qua non to bid. The design o f SICAF only allows firms registered in Brazil, with a tax code, to be entered into the system. Foreigners willing to sell throughpregiio shall have a branch registered inBrazil. The use ofpregiio as an alternative to NCB would technically require a solution for this barrier or BrazilCPAR Annex 2 an exception from the WB, as the Guidelines state that a foreigner willing to participate inNCB shall be allowed to do so. Due to the complexity and integration of SICAF with other Government systems as well as the size o f WB's operations inBrazil, it i s not likely that the system will be modified to accommodate such a requirement. The principal weaknesses inthe security o f Comprasnet and the pregiio system arise from the concentration o f data in a single database and the parallel concentration o f administrative responsibility in the hands o f a small team (five people) able to execute all technical transactions. These administrative and data storage design deficiencies could represent substantial risks for any WB-financed procurement transactions with values greater than those o f simple shoppingprocedures. Administrative Concentration, The head o f Serpro's Comprasnet Team has full access to the system and is able to append, delete and update any record in the database. He can runany operation inthe system and can authorize other members ofthe technical team to do so as well. Moreover, he can identify all users logged onto the system, which allows him, for example, to follow the actions o f any bidder participating in a reverse auction session. This gives the technical operator(s) o f the system greater access to an auction session than the auctioneer who i s managing the session. In the pursuit o f independence and confidentiality, the system does not allow the auctioneer to identify who is participating ina session, but it fails to ensure the same integrity from a technical point o f view. The concentration o f this unlimited access to the system among a very few individuals leaves the five member technical team ina difficult position when dealing with suppliers. For example, suppliers who are aware of the broad access that the technical team members enjoy could be tempted to exercise undue influence on individual team members with whom they are acquainted. It i s worth noting that among the five members o f the team, two are employees o f a private partner, which may increase their exposure even further. This exposure to pressure from suppliers may also be compounded by the fact that the owner of the system, the Ministry o f Planning, is administratively and physically apart from the operators, and thus unable to act as a buffer between commercial interests and their technical staff. Data Concentration. The risks posed by Comprasnet's administrative arrangements are exacerbated by the concentration o f all system data in one database which is used both for storage and for system management. This use o f a single database for all system functions makes it technically possible for a single person to add, delete, or modify any information inthe system. It is this relegation of all system transactions to a single level, managed by a small group o f employees with unencumbered access to all data, that could limit the application ofthis otherwise very usefulvehicle for WB-financed procurement. In order to address the dual fragility o f the system introduced by this concentration of both data and management/ administration, Comprasnet must first separate database and storage. To do this, a pointer or index could be introduced in the database to connect to the respective document. The segregation of administrative roles and responsibilities will follow as a natural reflection o f this action. Brazil CPAR Annex 2 This approach will have two positive outcomes. First, the team working with the database will no longer be able to access the storage system and vice-versa, which will separatethe roles and responsibilities o f technical staff in system management, both within and outside the technical team. Secondly, it will have the positive impact o f providing a more scalable platform for data storage. Saving all documents in the database has the advantage o f providing better performance. However, there will come a time when the database will be overloaded, impacting not only on system performance and perhaps on reliability (some databases in the market are known to corrupt when they reach a certain number o f entries) but also on the storage architecture. Ifall documents are to be saved in the database, expansion o f storage capacity will require hard disks, which are the fastest storage device but also the most expensive. Inaddition, each server has a limited capacity to add hard disks. SERPRO does not consider storage a concern at this time, nor do they expect it to become a concern in the future because the capacity o f the existing hardware i s very high. Nevertheless, it should be noted that implementation o f pregiio has just begun and it i s difficult to forecast how far it will go. Although overall network security i s not covered in this report, it does not appear to suffer.from the deficiencies identified above. To the best o f our knowledge, network security is robust and should not be cause for concern by the WB. PhysicalSecurity. It is a matter o f some concern that all Comprasnet hardwareis located at Serpro in a room protected only by a glass wall and a few locked entrances. In order to maximize the physical security o f the Comprasnet infrastructure, key pieces o f equipment should be installed in an area with more restricted access and the possibility o f placing a back up system in a different building should be explored. Finally, the question of which agency should be the depositary o f the data and information should be resolved. As public procurement data is government information SLTI appears to be the best choice for this role. BrazilCPAR Annex 2 BrazilCPAR Annex 3 The WB submitted a commentary on the previous draft o f the bill o f law. Its remarks are based upon the experience that the WB has acquired as an eyewitness and keen observer o f public procurement, both in Brazil and in other parts o f the world. Generally speaking, the WB regards the legal and institutional framework in Brazil as adequate and deems that it generally results in satisfactorily conducted public procurement. The WB is o f the opinion that the public tender law should encompass all aspects o f the tender process: Goods, Services (in general), Consulting Services, and Civil Works. Nonetheless, though the WB understands that there were reasons why the Government preferred not to deal with the issue of the tendering o f civil works at that time, it should be pointed out that that decision may result in having two distinct laws in force, each with different underlying philosophy and jurisprudence. The Government was advised o f this dichotomy and recognized that eventually the two separate procurement systems would have to merge again to provide a single body o f law for the public procurement. The next step in the procurement reform is the passing o f new legislation for the procurement o f goods and general services. In 2002, the Government undertook actions to modify the exisiting law creating a whole new set o f methods to make apparent their difference with the procurement procedures for works and consulting services that will be retained under the existing law 8666/93.The new methods were supposed to be selected based on the nature o f the product and not by thresholds. The proposed procedures included seven methods: general bidding, pvegiro, permanent quotations, auction (for goods); emergency acquisitions, consultation andjustification. The following paragraphs present a preliminary view o f the acceptability o f the new procurement methods: "General bidding" i s generally consistent with N C B and should be acceptable to the Bank, particularly, ifthe Borrower uses the model prepared by SEAN as updated at the time o f the enactment of law. "Permanent quotations" may be used in Bank financed projects if the initial registration procurement was carried out under NCB or ICB procedures acceptable to the Bank and the purchase i s made within six months o f the initialprocess. "Consultation" i s the only procedure that would allow the application o f subjective selection criteria; this may be used as an alternative to hiring o f consultant firms or organizations under paragraph 3.7 o f the Consultants Guidelines. "Justification" is a method to be used when competition is impossible. Justification should ensure adequate background and reasonablejustification on records. It is expected that this method would reduce drastically the number o f cases that were not subject to competition through waivers in the past. The use o f "Justification" as a procurement method would be acceptable to the Bank under the conditions o f paragraph 3.7 o f the BrazilCPAR Annex 3 Procurement Guidelines for Direct Contracting. "Lei150 de bens' (auction) i s disposal o f assets that would not be applied inBank lending. Finally, it was expected that if the new legislation for the procurement o f goods and services is enacted, two or three years later, the Government may initiate actions to consolidate the government procurement into a single body. This would imply reforms to the enacted law to add civil works or a new law encompassing all forms o f government procurement. The Bank is of the view that the unification of the regulations is positive and would likely support this medium term goal. The transition period with two government procurement laws would not be as easy. Law 86661'93has abundantjurisprudence that may not be applied to the new law. BrazilCPAR Annex 4 InMarch 2002, the heads ofprocurement of the multilateral developmentbanks (MDB) met to discuss and agree on a common platform when working in the same countries (especially when analyzing local procedures as part o f Country ProcurementAssessments Reports). The platform would also be used by the WB when discussing Sector Wide Approach operations (SWAPS) with other banks, bilateral donors, and governments. This Annex presents the review by the WB of the requirements of local procurement in Brazil in light of such a platform. The WB invites the Government to consider these guidelines as the basis for a country harmonized set of rules to be applied both to government procurement and procurement financed by the MDBs. Scope of theregulatoryframework In Brazil, the current procurement law covers all government procurement except for concessions that are covered by other laws. The hiring of consultant firms i s not clearly differentiated from other types o f procurement and the hiringof individuals by government i s treated inseveral regulations and decrees Transparency Transparency is generally achieved through the use of effective advertising, public bid opening, objective bid evaluation criteria, independent evaluation consistent with the stipulations of the biddingdocuments, award to a qualified bidder without negotiations, and publication of award results and disclosure of signed contracts and prices. The transparency i s somewhat compromised by the slow handling of protests throughout the biddingprocess. Inthe Federal Government a large share of the procurement was carried out by procurement procedures other than open competitive bidding; this problem is tackled through the introduction o f speedy and transparent procedures likepregr2o and register o f prices. Balancebetweenpublic andprivateparties The procurement rules in Brazil do comply with providing losing bidders with a way to submit contract awardprotests. Ingeneral, private parties are offered fair contract conditions. Exceptions and waivers InBrazil, the procurement regulations offer waivers to the local procedures inthe context of international agreements. However, the relevant provision (Art 42, par. 5) i s located under an Article that deals with international bidding.The location of the waiver inthe body o f the law has raised questions about the applicability of the waiver to national bidding, to the hiringo f consultant firms and individuals. The present law grants about 30 cases for waivers of public bidding. Brazil CPAR Annex 4 Registration of Bidders Brazilrequires registrationprior to biddingas a due diligence process to screenbidders' legal and fiscal capacity. Except in the health sector where there i s a separate register for firms and products, the mandatory registration i s not a cumbersome procedure. That does not reflect changes incapacity achieved by potential candidates. (a) National Registrationof Bidders Acceptance. The SICAF appears to be transparent and does not discriminate against prospective bidders - although it requires a tax identification number that i s granted only to f i r m s established in Brazil. Centralized or by agency. The registry is centralized and should be acceptable to the WB. Foreignem and national bidders. Foreignbidders are allowed to register. However, when the bidding is financed with national resources, the registration is a condition for participation; only when the biddingpertains to an external financing the registration is left for after award and before signature of contract. (b) Requirements Legal und commercial situation. This is the basic information for registration. This is minimuminformation for prospective suppliers andrepresentatives. httD:ilwww.inoe.br/informacoes geraisidados cadastrakodf Fiscal situation. Brazil requires bidders to keep their fiscal situation up-to-date inthe registry and this i s acceptable to the WB. Financial qualzjication. This is not a requirement for registration in Brazil. Further, there i s no registration for civil works. Technical quulijkation. There is no requirement to meet certain specifications at the time of registration. (c) Registry How to register. The registration in the SICAF requires a bank deposit but registration i s possible through mail. Frequency of updating. Registration is permanent for bidders updating information at any time. Time takenfor registration. It would take a few days Advertisement. Registration i s not used as a substitute for advertisement when open competition is required. However, registration in the SICAF would allow bidders to receive announcements for pregiio via e-mail. There is no registrationfor civil works. Open Bid-National CompetitiveBidding BrazilCPAR Annex 4 Procedural rules play an important role particularly when it comes to open competitive bidding.They shouldimpose the use ofwell-formulatedbiddingdocuments, which will result inbidsubmissions that are free from qualifications. Thoseproceduresor rules areas follows: (a) Effective advertisement The system inBrazil fully meets the requirement o f advertisement to be broad enough (using the appropriate media), giving enough time to bidders to prepare their bid. Many bidding opportunities are advertised electronically. Notices are posted on the Official Joumal and large circulation newspapers and on the Federal Procurement Portal (www.comprasnet.gov.br). The federal purchasing units are responsible for posting the advertisements. In 2001, 12.457 notices were posted on printed means and 29.092 on the website. The procurement system inBrazil does include: Newspuper.Mandatory publication inone local newspaper, in addition to the Official Gazette Web page. There are 1,500 purchasing units in the Federal Govemment. Many have web pages to post their biddingopportunities. Thus far i s not possible to use the publication inthe Web as a substitute for the publication inNewspapers. (b) Eligibility In Brazil, the eligibility criteria and procedures do not deny bidders access to a bidding process or an award for reasons that are not related to their qualification to carry out the contract. In general, the procedures are partially based on the ability of bidders to carry out the contract; are not restrictive to foreign bidders; allow local blacklisting for fraud and corruption to be carried out with due process; do not promote the participation o f government-owned enterprises acting as bidders as the law permits hiringthem directly to act as suppliers or contractors for government. (c) Qualification of bidders The current rules in Brazil to assess the qualifications of bidders is a two- (at times three) envelope system. There i s a consensus that the law should adopt a post-qualification system. Prequalification as a separate procedure prior to bidding, though not regulated, i s not prohibited in law either. The requirements o f the qualification through the two-envelope system seldom includes satisfactory past performance o f the bidders focusing in legal and financial aspects. In assessing the qualifications the reviewers rarely use point systems but the financial assessment includes many complex indices. The review o f bidders' qualification are conducted separately from the evaluation of their bids. Pre-selection, meaning that the government agency i s free to invite any of the qualified bidders, i s used only for small procurement. Ideally, no bidder should be disqualified on grounds of insignificant bureaucratic procedures, but in Brazil a significant number of bidders are disqualified on insignificant grounds. (d) Standardbiddingdocuments Standard bidding documents are o f paramount importance for transparency, speed of the process, increased competition, and fostering o f capacity (standardization of procedures). The Brazil CPAR Annex 4 WB has agreed with SEAIN on the use of standardbidding documents for NCB works, and goods, and a set of rules for shopping. The I-ADB was invited to join the effort in the past. These documents apply to WB-financed procurement. There are no federal standards.. The followingmay be considered as the basis for such documents: (1) Instruction to Bidders and Selection Process Minimumof 30 days to submit bids; Bidsmay be submitted by post or by hand; Budget-the maximum amount of budgetary resources available for the bidding process could be disclosed. However, no minimum acceptable price (maximum discount) would be established; Clear instructions on how to buy bidding documents, indicating address and price. However, bidders who decide at their own risk to submit a bidwithout having bought the biddingdocuments should not be Isqualified. Clarifications to biddingdocuments should be inwriting only. Amendments to bidding documents should be advertised with the same procedure used to advertise the original bidding documents. There should be at least a week interval between the publication of the last amendment and the date for bid submission. Bid forms should be substantially similar to those used for ICB, with appropriate flexibility with respect to design. The local law requires two envelopes. This should be acceptable, as in general, adequate safeguards against retaining the second envelope unopened are generally observed. There i s also an effective bid protest mechanism in place for the due processing of bid complaints. Bid evaluation criteria should be nondiscriminatory. They should be disclosed and rigorously quantified in monetary terms to define the "lowest evaluated bid." Quantifying bid evaluation criteria inmonetary terms is the only methodthat leads to transparent evaluation and allows bidders to submit an effective protest to the awarding authority. (2)Language There are no issues regardingthe use of Portuguese. (3) Bidprices. Bidding documents should define price and payment conditions. (a) currency of bid and payment (use of reais is not an issue); (b) the method of payment; and (c) price adjustment procedures. Contracts under 12 months may not use price escalation formulas, as an anti-inflationary measure. Contracts over one year normally include price adjustment formulas that are not used in bid evaluation. In that case, it i s customary to apply correction indices established by official sources. One of the most commonly used is Revista Conjuntura Economica, published by FundaqBo Getulio Vargas, which collects and shows indices for almost all sectors, from major items in civil works contracts to consulting and other ordinary market services). (4) Bid security. The local market uses both bank securities and insurance bonds, for both procurement of goods and works. In electronic procurement there are no bid securities and bidders failing to honor a bid are subject to penalties. (5) Liquidated damages. These are not a common practice in the country, which follows civil law. Instead, contracts prescribe non-reparation penalties. In the view of the WB, liquidated BrazilCPAR Annex 4 damages should be introduced, as they create an incentive to comply with the contractual requirements. (6) Complaints. The Brazilian procurement procedures provide losing bidders an effective way to submit protests pertaining to contract award. The details of the protest system were discussed above. (7) Bid opening. The regulations on public bid opening of all bids, and recording of the opening in minutes signed by all bidders in attendance, is required. Additionally: Late bids shouldbe rejected and returned unopened; the procedures for bid opening are formal; minutes are prepared capturing accurately all events and prices, at times in an annex; safeguard o f price envelope: when two envelopes are used the biddingdocuments specify where and how the price envelope would be safely kept. (8) Confidentiality. Probably this i s the major departure from the MDB platform. The Procurement Law allows bidders to look into the bids and allows bidders to look into the proceedings files. For transparency reasons, the evaluation report and all information is made available to the public. (9)Evaluation of bids. The bids are always evaluated by the biddingcommittee. The bidding committee i s allowed to contact the bidders for clarifications but seldom require such clarifications. The responsiveness is determined on very formal terms. The qualification of bidders i s made separately from the evaluation, on an ex-ante basis. Many bidders are thus disqualified for minor deviations before their prices are even known, motivating protests. The awards generally go to the bidders submitting the lowest price. Merit point systems can be used under the Law, and if there are other evaluation criteria in addition to price, these are applied correctly. The point system i s rarely used apart from procurement of complex information technology, in which case its use is mandatory. Rejection of all bids is relatively frequent in Brazil. The main reason appears to be that the price offered by the lowest bidder i s substantially higher than the budget which many times i s not very realistic. - (10) Preference to some clmses of bidders. The Law specifically prohibits preferences, except in the case of a national bidder competing with a foreign bidder, in which case preference shall be granted to the domestic product or service offered under the same conditions as the similar from abroad. (11) Award criteria The award methodology of the public biddingin Brazil follows the rule that the award shouldbe made to the bidder having submittedthe lowest evaluated responsive bid, provided that the bidder has been determined to be qualified in accordance with pre- disclosed criteria. With the exception o f preggo, contract award is made without negotiations, since negotiations would conflict with the principle of immutability of proposals. There i s another exception to the immutability principle: when the lowest bidder refuses to sign a contract, the second lowest i s invited to signed the contract if he accepts to keep the price offered by the lowest bidder. (12) Standard contract documents. There are no standard contract documents in Brazil. The models used generally put more emphasis on the regulatory parts of the contract (usually dragged from the Law) but lack in-depth treatment o f the scope and implementation o f the contract itself. Contracts are usually very poor inthe depiction of the rightsand obligations of the borrower and of the supplier or contractor, description of the scope of supply / works to be implemented, delivery/acceptance/billing routines, and supervision in general, partially BrazilCPAR Annex 4 because the legal framework of the country includes regulations for most of those aspects seen separately. The MDB platform suggests that the following provisions should be included: 0 Payments+a) the method of payment should be the same as defined in the bidding document; (b) the currency of payment should be the same as that of the bid prices except when as a proxy for price adjustment a harder currency is used for bid price but payments are made in the currency of the Borrower at the exchange rate applicable on the date of payment; (c) the employer should automatically pay interest for late payments; (d) price adjustment procedures should be used, preferably using an adjustment formula 0 Performance security-a guarantee for satisfactory performance of the contractor or supplier should be included either in the form of a performance security or retention o f payment. Performance securities should follow the generally accepted practice used inthe local market (securities issuedby banks or by sureties). 0 Settlement of disputes-contracts should include a system for settlement of disputes. In very large contracts the use of a Dispute Resolution Board (or a Dispute Resolution Expert in large contracts) should be encouraged before disputes are submitted to arbitration or to courts. (13) E-procurement. Brazil has an advanced COMPRASNET system that includes disclosing of business opportunities, making bidding documents available to bidders, disclosing bid results, and malung public disclosure of contract texts and prices. The WB evaluated COMPRASNET as a candidate for public biddingwith WB financing and some concerns on the security of the system prevented such step. Reserved Invitations-Private Bidding or "Shopping As public biddingtakes a long time, agencies tend to break up their needs and multiply smaller purchases which can be done through "convite". The Law prohibits that practice. However, the new Law should address this issue in a more effective way. It is the WB's opinion that a time interval of at least six months between procedures including the purchase of the same items would effectively discourage the practice, encouraging planning. In addition, pregiio is an alternative method that is quickand effective. Direct Contracting. This shouldbe used only inexceptional cases with duejustification to be kept on record. In Brazil, there i s an excessive number of conditions to legally justify direct contracting. These shouldbe reduced as to limit the cases to the following conditions: (a) Spare parts from the original manufacturer of the equipment. (b) Only one manufacturer exists for the requiredgood; and (c) Emergency, defined as a situation emerging from natural disaster. Local Consultants Selection Process. Brazil does not have a separate regime for hiring consultant firms, although the Law admits alternatives to lowest price systems, where quality factors may be considered. The WB learned from the consultants industry, however, that the clients tend not to use those alternative systems. The reason they often express for the almost exclusive use of lowest price criterion is the fact that the alternative methods (quality and quality-and cost based selection), known in the Law as "nielhor tkcnica" and "tkcnica e preqo", would involve subjective factors. Brazil CPAR Annex 5 Brazil is the 5th largest world manufacturer o f medication. According to the National Agency o f Sanitary Surveillance (Agzncia Nacional de VigilhnciaSanitaria - ANVISA), there are 980 pharmaceuticals companies in Brazil, excluding distributors, drugstores, and pharmacies, out o f which 628 are manufacturing laboratories. In addition, there are approximately 1,500 distributors and more than 50,000 pharmacies and drugstores. It i s estimated that the global income o f the sector is US$ 10.5 billion. As it relates to supply, the market i s concentrated in spite o f having a large number o f The Case of Procurement of Pharmaceuticals in the laboratories. This i s especially true State of Bahia. In Bahia availability o f pharmaceuticals has improved substantially with the implementation o f the in relation to the supply of active Basic Pharmaceuticals program (Assistdncia Farmacdutica principles, where 80% o f the current Bhsica),which consists o f a transfer o fR$2per person per demand depends on importation. On year to municipalities designed to provide a basic set o f the demand side, the main drugs for the population. The program is financed jointly by the federal govemment, which contributes R$1, the characteristic of its market is its low state (=OS), and the municipality (RS0.5). Municipalities elasticity, but it is different for the can participate in two ways: receiving the funding directly distinct income levels and types o f from the federal govemment and making their own product. At the medium and higher purchases or by using SESAB as a purchasing agent. income levels, price influences very While this program has improved availability o f little the consumption o f pharmaceuticals, there remains some duplication between several sources o f drugs, inefficiency in the purchasing phannaceuthical products, whose process and other constraints in the distribution system. demand is made o f a large number o f There is a trade-off between price and opportunity in the final consumers, who have no purchases. SESAB purchases large quantities and obtains purchase choice since the medication lower prices than individual municipalities. However, if prescribed by the physician. some municipalities opted for managing the purchase directly to avoid delays. In2002, the State o f Bahia passed Demand is, therefore, non-elastic in legislation allowing the use o f E-procurement for these relation to price variation. As for purchases; this new procedure may overcome the trade-off 1over-the-counter medication, between price and opportunity. Under the proposed demand by those two groups can be system, estimates o f need will be made locally and elastic because, in general, one can consolidated centrally. A central authority will then invite bids for the estimated total volume o f needs and suppliers substitute a medication by another. will compete with proposals that include price and cost o f For low income groups, demand i s delivery to different locations. The winning proposals will highly inelastic to price and almost be valid for a set period o f time and their conditions will exclusively elastic to income. be posted on the Intemet. Local users can then make the Therefore, even ifthere i s a decrease purchase directly from the suppliers at the agreed price. A Bank-financed proposed project will support the basic inprice, income will still be a factor pharmacy program by implementing the new planning and determining consumption. purchasing technology and by solving other bottlenecks in Nonetheless, income increment at the distribution chain. this level can increase consumption. SOURCE:Mr.D. Cotlear PAD for BahiaHealthNov. 2002 The Brazilian Government's procurement o f pharmaceuticals is done to accomplish the drugs aid program, derived from the Constitutional universal right o f access to health services. Therefore, the Government must implement policies and set the conditions Brazil CPAR Annex 5 necessary to make sure that all patients are granted access to the medication they need. In Brazil, this i s accomplished through the Health Single System (Sistema Unico de Sazide- SUS), gathering federal, state and municipal entities, including private-owned health units meeting certain eligibility criteria. This basic drugs assistance program was reformulated in 1999, when it was decentralized to the municipalities that assume the responsibility to procure the necessary basic drugs. The program currently covers more than 5,300 municipalities. The program has been strengthened with the implementation o f the Family Health Program (PSF) and the efficiency o f drug procurement by municipalities has increased with the recent creation o f a price database (Banco de Pveqos). To achieve the objectives o f the public health policy, the purchase o f drugs acquisition i s de-centralized. An undesirable side effect o f that policy i s splitting the power to bargain, making it more difficult to obtain price reduction. In 2000, the expenditure at the federal level reached R$1,313.05 million. In this same year, the States' and Municipalities' expenditures were R$169.56 million. From 1997 to 2001, the budget increase for the procurement o f drugs was about 32%. Besides, states and municipalities carry out additional acquisitions o f about R$1 billion to complement the federal expenditures. Additionally, the Ministryof Health estimates that R$1.3 billion are used inhospitalizationprocedures paidfor by the SUS. Considering the amounts involved and the enhanced importance o f such health program for the Government, price reduction o f the pharmaceuticals is a key factor for its execution. In order to achieve such decrease, the strengthening and improvement o f public procurement are vital. In sum, the procurement of pharmaceuticals by federal, state, and municipal entities should be considered strategic and new local and international procurement methods should be developed taking into account the large purchase power o f Brazil. BrazilCPAR Annex 6 The implementation o f more than half o f the WB's investment loan portfolio in Brazil i s facilitated by technical cooperation agreements with international agencies (IAs). The services provided by these agencies range from procurement services to financial and administrative transactions pro~essing.~'Of the 52 projects financed by the WB, 27 involve agreements with agencies; o f the 26 grants managed by the WB, 16 involve such agreements. These technical cooperation agreements are regulated by "project documents," or Prodoc. Several projects have more than one Prodoc with different agencies. Most Prodocs associated with WB projects are with UNDP. UN and OAS agencies are also similarly involved in projects funded by the I-ADB. The WB has identified four issues in the use o f agencies for project implementation: The first is related to policy concerns on the use o f the agencies. The participation o f the agencies may represent a way to get around market imperfections - larger structural problems in the economy that should be addressed over time through policy reform. The second set o f issues relates to the fiduciary practices, standards and capacities o f these agencies and whether they meet and/or are consistent with WB Guidelines. The third issue relates to the fact that use o f agencies i s often at odds with the goal of building capacity in client executing agencies; and, the fourth issue relates to the cost o f using these agencies and whether clients are getting value for money. The WB recognizes that the agencies have an important role in project implementation, and the WB should improve the efficiency o f collaboration between the agencies, the clients and the WB. Government clients seek international agency assistance with contracting and accounting tasks essentially for one o f two reasons. In the case o f weak capacity, international agencies can help step in to ensure key project implementation tasks are carried out. However, more frequently, these arrangements are considered necessary to overcome bureaucracy involved inproject implementation by public entities, and the rigidities in the labor code which make hiring and firing difficult, and the rigidities in the budget preparation and execution process which make access to government counterpart funds unreliable. The use o f international agencies to get around cumbersome labor legislation deserves special attention. The agencies have traditionally been used to hire project agency/PIU staff (even non-specialized, support staff), under the guise o f "individual consultants'' hired by the agencies. A recent judicial ruling stated that this practice goes against the 69The UNagenciesusedto have agreement with the Brazilianagency UAP/ABC(withinthe Foreign Affairs Ministry).UAP was an administrativearm ofABC responsible, inter alia, for conductingthe front- desk procurementunderthose projects(Le. advertising,contact with suppliers, handlingbids, tracking, minutesetc.). UAP/ABCceasedto exist inApril 2003. All procurementdecisionsare madeby the UN agencies. Paymentis the UNagencies' responsibilityas well. Brazil CPAR Annex 6 provisions of the Constitution (Article 37, 11)70thus establishing the hiring o f individual consultants by the Federal Government pursuant to the three methods discussed above under the Section of Hiving of Individual Consultants. This decision will affect all technical cooperation projects implemented by the Federal Government, irrespective o f the agency providing the assistance. Thus, this decision will have a substantial impact on the 27 WB-financed projects and 16 WB-administered grants with Prodocs. A second set o f issues relate to the agencies' fiduciary Guidelines, practices and compliance with WB procurement, financial managemenureporting and disbursement norms. These issues were addressed by the WB. A preliminary decision i s made to allow intermediation o f UNDP but seriously question the participation o f other agencies. The following deficiencies were identified inthe exam o f the current practices and should be confirmed or resolved as the capacity assessmento f the UNAgencies i s evaluated: Procurement. The agencies have shown difficulties in understanding and/or applying WB's Procurement Guidelines, as demonstrated in a number o f ex-post reviews. Weak capacity o f several agencies was noted, and a need for training in WB Guidelines appear necessary. Concern was expressed at the agencies' participation in bid evaluation process. Financial Management and Disbursement. Currently, expenditures are identified by Prodoc only, not by project (and one Prodoc can serve for several projects), weakening transparency and accountability. Executing agencies often don't have information from the agencies and in turn do not pass them on to the WB. The WB does not have a direct relationship with the agencies. Once funds are disbursed to an agency against a Prodoc they are considered "disbursed," but may not havebeen spent. There is concern over the trade-off between the agencies' service provision and building local capacity. Since one o f the WB's overriding objectives i s capacity building, it is not clear that substitution o f temporary contracted staff (national or international) is preferable to buildinglocal capacity, even if it gets the job done more quickly in the near term. Other views state that the services provided do not achieve the latter objective of efficiency either, since the agencies themselves need training and capacity building.Does it make sense to train the IAs instead of buidlinglocal, in-house capacity ? Iftraining is needed, what areas are highest priority ? Which other entities can help in providing training (SEAIN, a public university) ? A number of projects are experimenting with buildingthe capacity o f localprivate agencies. Cost was also cited as a factor in use o f agencies. One opinion i s that the fees charged by the agencies (3 percent o f the value o f the Prodoc) were exorbitant, given the relatively straightforward nature o f the services provided. On the other hand, others felt that the fees were reasonable - e.g., to hire a private consulting firm to administer the project (procurement, financial management and disbursement functions) would consume 10 to 70All references to the legislation andits application andscope were extractedfrom the Conciliation Agreement signedon June 7,2002 by the Ministkrio PGblico do Truhulho and the FederalGovemment. Brazil CPAR Annex 6 20 percent of the project cost. A number of projects are also experimenting with using private sector contractors. BrazilCPAR Annex 6 I BrazilCPAR Annex 7 The event took place in the Global Distance Learning Center in Brasilia on April 30th, 2002, giving the opportunity for representatives from the procurement bodies o f the governments o f Argentina, Bolivia, Chile and Brazil (present at the Brasilia CMU's GDLC) to exchange experiences and share knowledge with representatives from the governments o f Peru and Jamaica (via video conference) and the Office o f the RPA in Washington-DC. From Brasilia, Mr. Armando Araujo (OPCPR) chaired the Conference assisted by Mr.EfraimJimenez. Messrs. Keisgner Alfaro and Andres Macgaul assisted in the preparation o f the conference inviting the government officials from Argentina, Chile, Bolivia and Peru, respectively. The conference started with a complete exposition o f the Peruvian experience, where there is a fully established regulatory authority. The President o f CONSUCODE explained that the agency is responsible for almost all steps in the procurement regulation, from the issuance of procurement rules to the monitoring and evaluation o f contract implementation. In addition, CONSUCODE comprises an administrative court responsible for ruling procurement-related complaints and also for appointing arbitrators when the arbitrators indicated by the parties do not reach an agreement on the third one to complete the panel. In the follow up, participants were invited to comment on the responsibilities o f the regulatory bodies regarding their respective procurement functions - which are summarized in the following table. In the closing o f the conference, the representative from Peru suggested the creation o f an official multilateral body o f agencies. The WB welcomed the idea but suggested the creation o f a network o f regulatory agencies of procurement indifferent countries instead. The comparison table below shows how the different countries carry out each one o f the procurement-related functions: PROCUREMENT- RELATED PUNCTIONS RESPONSIBILITIES THE REGULATORYAUTHORITY OF Issuanceof Procurement Rules YES NO YES YES YES Official Interpretationof Rules YES NO YES YES NO YES (clarifications) Developmentof Electronic ems Not (Management,Advertising YES YES YES NO YES defined yet and e-bidding) BrazilCPAR Annex 7 Dispute Resolution (contractimplementation) NO NO NO NO NO YES Catalogue of Products NO YES YES NO Not YES defined yet BrazilCPAR Annex 8 An advanced degree with a major in a relevant discipline (e.g. Business Administration, Engineering, Commerce, Law) 0 Minimumof 8 years of directly relevant experience in successfully carrying out technical or managerial duties inprocurement Indepth knowledge and understanding o f institutional, technical, and commercial aspects o f procurement Good understandingo f control and audit practices on government procurement 0 Proven integrity and highly ethical behavior Strong conceptual, analytical, and evaluative skills in handling procurement issues 0 Proven knowledge in the national legislation on procurement and fiscal responsibility; fully conversant with the institutional processing o f procurement in the federal, state or municipal level Excellent knowledge o f COMPRASNET Certifiedpregoeiro 0 Basic knowledge o f the procurement guidelines of international institutions and OMC, UNCITRAL, and Mercosul guidelines o f international commerce Strong communication skills with ability to prepare, present, and discuss findings in written and oral form. Ability to hnctioneffectively and as team member or leader inmulti-disciplinary teams within a matrix management environment. 0 Ability to advise and coach other staff andjunior procurement colleagues, and to creatively find solutions to procurement issues. BrazilCPAR Annex 8 Brazil CPAR Annex 9 The views o f the industrymay be summarized as follows: (a) The changes should be introduced as an amendment to the current legislation, rather than creating a totally new law, since this could cause the principles o f public procurement to be changed, affecting those that refer to civil works, which remain untouched in the current law. In fact, this i s apparently what may occur with the implementation o f the Government's proposed procurement bill; (b) The changes initiated in the public administration to improve control, responsibility and transparency by the Budget Directives Law (Lei de Diretrizes Orqamenturias - LDO) and Fiscal Responsibility Law (Lei de Responsabilidade Fiscal - LRF) should continue involving the procurement law which would, then, impose that the Government i s obligated to fdfill its contractual obligations, adding legal stability to contract performance on both parties. Thus, penalties should be established for the Government in case o f breach o f contract, including heavy fines for payment delays as well as for works interruption due to budget constraints; (c) The lowest price concept must be clear and objective. The concept o f "better- price" must be re-introduced, meaning that the comparison o f bids would include all evaluation criteria, rather than the read-out proposal price alone; (d) The concept o f impractical price may be excluded in the novel legislation, but effective methods to guarantee full contractual performance should then be created. To this end, the bidding documents should require and the contract should include Performance Guarantees in adequate proportions and provide for severe sanctions in case o f breach; (e) The Law should give space for procedures to be set by regulations, allowing adaptation o f the principles to specific sectors (goods, works, services, and consulting services); (0 Procurement of large works should always be preceded by pre-qualification. The criterion should have minimum requirements for capacity, experience and financial capability compatible with the scope; (g) The firms should be free to demonstrate experience by presenting CREA certificates or copies o f contracts and paid invoices. The experience requirements should be from the firm and not from the Technical Responsible (RT); (h) Every tender should allow the participation o fjoint-ventures. Requirements from firms forming a joint venture would be: jointly-and several liability for the contract; BrazilCPAR Annex 9 at least 40% o f the required experience from the leader and at least 25% from each o f the other members. These percentages would also apply to financial capability; (i)Thelawshouldprohibitthatthetechnicalassetsofaterminated firmbeusedby several firms. The technical assets should be the sole property of its legal successor; (j) The evaluation process should be confidential. The access to the documents should not be allowed before the publication o f the award recommendation; (k) The law should create a system to allow an independent authority to refer the complaints ina limited time. The complainants would have to deposit a guarantee that could be executed in the case o f unfoundedcomplaints; (1) The official budget should not be a reason to reject any proposals. Negotiations with the bidder presenting the lowest bid (or the next lowest bids) would not be allowed even when the price offered by the lowest bidder exceeds the budget; (m) Waivers to bidshouldbe limitedto emergency situations, as opposed to urgency, and other few cases well defined by law. The WB understands that several of the initiatives presented by the industryare consistent with good procurement o f civil works and endorses support to the initiatives listed in(c), (e), (f), (g), (h), (j), (I)and (m) above. The concern reflected inpoint (k) is understandable; the WB would recommend that the matter be studied further, including consideration o f alternatives, like the establishment o f specialized or a federal administrativebody for dispute resolution. BrazilCPAR Annex 10 This example is based on the WB's procurement staff code. Another example o f a local code o f professional ethics may be found at the web site o f the Brazilian Federal Council o f Engineering (CONFEA) at http: //www.confea. org.br/ codigo-etica final-070303 .pdf. Art. 1 - To avoid strictly any conflict o f interest or even the appearance of a conflict o f interest inany matter related to the performance o f the government staff; Art. 2 - To respect the confidentiality o f information received in the course of duty and never use it for personal gains. Information given in the course of duty should be true and fair and never designed to mislead; Art. 3 - To decline acceptance directly or indirectly of any gratuity, gift, favor, entertainment, or anything o f monetary value from anyone who has an interest in seeking business inGovernment Procurement; Art. 4 - To disclose to hidher line manager any personal interest which may influence or appear to influence the staff member's impartiality in any matter relevant to his or her duties; and Art. 5 - To disqualify him/herself from outside employment or activities, including dealings with former or future employers and employment after separation, that conflict with hidher former duties and responsibilities as a government procurement official. wb072783 M:\Implementation\Procureinent\AAAand ESW\CPAR\Brazil CPAR-Mar-30-ej-2004.doc April 5, 2004 933 AM