Report No. 29315-SV Republic of El Salvador Country Procurement Assessment Report May 2006 Central America Country Management Unit Regional Operations Department 2 Operations Services Department Modernization of the State Latin America and the Caribbean Region Division (RE2/SC2) The World Bank Inter-American Developmemt Bank Document of the World Bank and the Inter-American Development Bank El Salvador CPAR 1 ACRONYMS and ABBREVIATIONS ACODES Asociacion de Consultores de El Salvador (Consultants Association of El Salvador) ANDA Administracibn Nacional DeAcueductos y Alcantarillado (National Administration of Aqueducts and Sewage) IDB Inter-American Development Bank CAFTA Central American Free Trade Agreement CASALCO C h a r a Salvadorefiade la Construcci6n (Salvadorian Chamber o f Construction) CCR Corte de Cuentas de la Republica (Court of Accounts ofthe Republic) CFAA Country Financial Accountability Assessment CNT.1 Contraloria Interna (Office of the Internal Comptroller) COMURES Corporaci6n de Municipalidades de la Republica de El Salvador (Corporation of Municipalities ofthe Republic of El Salvador) CPAR Country ProcurementAssessment Review DR-CAFTA Tratado de LibreComercio con laRepublica Dominicana y Centroamerica (Dominican Republic and Central American Free Trade Agreement) FISDL Fondo de Inversi6n Social parael Desarrollo Local (Social InvestmentFund for LocalDevelopment) FODES Fondo de Desarrollo Econ6mico y Social (Economic and Social Development Fund) FTA Acuerdo de Libre Comercio (Free Trade Agreement) IDF Fondo de Desarrollo Institucional (Institutional Development Fund) ISDEM Instituto de Desarrollo Municipal (Instituteof MunicipalDevelopment) ISS Instituto de Seguro Social (Social Security Institute) LACAP Ley de Adquisiciones y Contrataciones de la Administracibn Publica (Law on Public Administration Procurementand Contracting) MARN Ministerio de Medio Ambiente y RecursosNaturales (Ministry ofEnvironment andNatural Resources) MH Ministerio de Hacienda (Finance Ministry) MOP Ministerio de Obras Publicas (MinistryofPublic Works) FOVIAL Fondo Vial (Road Fund) PIB Product0 Interno Bruto (Gross Domestic Product, GDP) PRISM Procurement Report InformationSystem El Salvador CPAR .. 11 SAFI Sistemade Administracih FinancieraIntegrado (Comprehensive Financial Administration System) SIAC Sistema de Adquisiciones y Contrataciones de la Administracibn Phblica (Public Administration Procurementand Contracting System) SINIMA SistemaNacional de Gesti6n delMedio Ambiente (National System of Environmental Management) STP SecretariaTCcnicade la Presidencia (Technical Secretariat of the Presidency) TLC Tratado de Libre Comercio con 10s EstadosUnidos (Free Trade Agreement with the UnitedStates) TLCCA Tratado de LibreComercio Centroamericano (Central American Free Trade Treaty, CAFTA) UACI Unidadde Adquisiciones y Contrataciones Institucional (Institutional Unitfor Procurementand Contracting) UFI Unidad Financiera Institucional (Institutional Financial Unit) UNAC Unidad Normativa de Adquisiciones y Contrataciones (Regulatory Unitfor ProcurementandContracting) UNDP Programade NacionesUnidas parael Desarrollo (UnitedNations Development Program) El Salvador CPAR ... 111 FOREWORD 1. Preparation o f this Country Procurement Assessment Report (CPAR) was agreed between the Government o f El Salvador and the IDB and WE3 managements, to serve as a dialogue instrumentbetween the Government and the Banks to help strengthen the reform of the public sector procurement and contracting system that the Salvadoran Government is carrying out. This CPAR was prepared on the basis o f an Initial Concept Paper dated December 16,2003 and the instructions for CPAR preparation datedMay 23,2002. 2. This report is based on an initial draft document on public procurement preparedby the IDB, the informationreceivedinthe country by IDBand IBRDofficials working onthe report, as well as on discussions held betweenthe Banks and Salvadorian officials from both public and private sectors. IDB staff in San Salvador and Washington and IBRD staff in Washington provided valuable comments to this report. Preparatory work for this report included: (i)a review o f current legislation and regulations on public procurement and contracting practices; (ii) IBRDcountryassistancestrategypaper;(iii) ofapreliminarydraftpreparedby the review the IDB; and (iv) three visits to the field by IDB and IBRD experts that included numerous meetings and discussions with said experts and officials from approximately 15 public institutions and executives from a similar number o fprivate companies. 3. The official counterparts for the Government were the Technical Secretariat o f the Presidency o f the Republic and the Finance Ministry. The national coordinating office o f the reform component o f the procurement and contracting sector o f the aforementioned Technical Secretariat and the Finance Ministry's Regulatory Unit for Procurement and Contracting (UNAC) playedvery important roles inthe work accomplished by these counterparts. 4. The team that worked on the report was made up o f Messieurs Hugo Betancor and Roberto Camblor (IDB operation specialists); Vladimir T. Jadrijevic (IBRD procurement specialist - task manager); and Enrique Pinilla (Consultant). The following persons served as peer reviewers: Messieurs Rafael Rodriguez-Balza (IDB Coordinator for El Salvador); Joel Branski (IDB procurement specialist and deputy representative in San Salvador); Nicolette Bowyer (IBDR country officer); and Mario Sanjinez (IBRD specialist inpublic sector administration). Country-related matters were led by Mrs. Jane Armitage (Director for El Salvador), and were coordinated by Mrs. Bowyer. Mr. Bernard Becq (Regional Procurement Manager) was in charge o fthe quality assurancereview. 5. The field work for this report was completed in November 2004. While the CPAR was undergoing consolidation and approval, progress was being made in the institutional framework and procurement processes in El Salvador. Because o f this, a final chapter on updating,written inMay 2006, is being included, which describes the mainchanges made and a few recommendations that were agreed uponto consolidate these changes. The work team for the updating effort was made up o f Messrs. Enzo De Laurentiis (World Bank Regional Manager for Procurement); Diomedes Berroa (World Bank Procurement Coordinator for Central America and Panama); and Jorge E. Vargas (consultant). El Salvador CPAR 1x1 EL SALVADOR PROCUREMENTSYSTEMASSESSMENT Table of Contents FOREWORD iii EXECUTIVE SUMMARY V I.THEPUBLICSECTOR 1 A. Background 1 B. LegalFramework 5 C. Institutionalaspects and organization 13 D. Controlsystems and measuresagainst corruption 23 E. Processesand practices 26 F. PerformanceofContractManagement 31 G. EnvironmentalIssues 35 11PRIVATE SECTORPERFORMANCE 36 H.Commercialpractices 36 I.TheConstructionIndustry 38 J. Professionalservices 39 111PERFORMANCE OFIDB-ASSISTEDPROJECTS 40 IV PERFORMANCEOF WORLDBANK-ASSISTEDPROJECTS 42 V GENERALASSESSMENT OFRISKS 44 V7 RECOMMENDED ACTION PLAN 46 W I MONITORINGAND EVALUATION 46 VIII UPDATE (May 2006) 51 APPENDIX A1 70 APPENDIXA2 74 APPENDIX B 79 APPENDIX C 82 El Salvador CPAR V EXECUTIVESUMMARY Update This report includes a final chapter on updating that was considered necessary because significant changes and progress was made during the period between the initial gathering o f information in the field and the consolidation and approval process o f the CPAR. Chapter VI11on updating, written in May 2006, reports on the principal changes that were made. Since the original recommendations were complied with, the chapter on updating offers newrecommendations. Country Background 1. El Salvador is the smallest country in Central America and it is also one of the most densely populated in the western hemisphere, with 21,000 square kilometers o f land, 6.5 million inhabitants, and a GDP per capita of US$ 2,200. Government expenditures for procurement of goods, services and public works, reached a peak o f about US$1.3 billion in 2003, equivalent to 9% o f the GDP. During the 2001 - 2003 period, most of the investments inthe construction sector (one third o f total expenditures) were for roads, hospitals, schools, housing, potable water and electric power infrastructure. There are 368 Government agencies in El Salvador, 262 o f which are municipalities and the other 106 are ministries, decentralized entities and public utility companies. Given the importance o f public sector investments, the need to utilize the scarce resources more efficiently, and the need to make the legal framework for public procurement compatible with international standards and the requirements o f regional free trade agreements, in the year 1996 the Government launched a plan to reform the existing legal framework. The Legal Framework 2. The adoption inMay 2002 o f the Law on Public Administration Procurement and Contracting (LACAP) has beenone o f the most important reform actions carried out inEl Salvador during the past decade. The LACAP represents a significant improvement over the previous procurement law, since it standardizes in a comprehensive manner the regulations on public sector procurement and promotes competition in an open and transparent manner. In this direction, the LACAP promoted the establishment o f the Public Administration Procurement and Contracting System known as SIAC. 3. Since the procurement law was approved and began to be implemented, the Government has demonstrated its commitment to the reform process and the Technical Secretariat o f the Presidency (STP) successfully carried out a training and capacity- building program to disseminate the new law throughout government agencies and the private sector, and to strengthen the new procurement system. For its part, the Regulatory Unit for Procurement and Contracting (UNAC) has provided technical assistance to government agencies on matters related to enforcement o f the law. In spite o f all these efforts, consolidation of the procurement processes established by the law has not been accomplished to the same degree at all public agencies, particularly in certain municipalities and other offices, as a result o f the technical weakness of the people in El Salvador CPAR vi charge o f implementation. Additionally, there i s a need for strong leadership and a strategic implementation plan to consolidate modernization o f the public procurement process ina coordinated and effective manner. Since the law's implementing regulations have not yet been issued, this has led to different interpretations o f certain procedural details and to inconsistent enforcement practices. The InstitutionalFramework 4. The UNAC, which was created by LACAP as a functional and technically autonomous entity that i s administratively dependent on the Finance Ministry, i s a relatively young organization with clear objectives. Even though it i s carrying out its assigned mission with enthusiasm, it i s still rather weak. To date (November 2004) it has not yet achieved the necessary credibility with government agencies and has not been able to exercise effective leadership in policy development or to perform its functions satisfactorily due to weak capacity. Since it was created, the U N A C has enduredfrequent management changes. Furthermore, the UNAC has internal organization problems stemmingfrom a shortage o f qualified technical personnel and the lack o f an information system as well as a monitoring and evaluation tool that would allow measurement o f the performance o f the procurement reform process that, inturn, would provide feedback for the policy-making process. 5. The SIAC includes the Institutional Units o f Procurement and Contracting (UACIs) in each government agency (106 units) and municipality (262 units), which have substantially different technical capabilities. With assistance from UNAC and the STP, some o f the UACIs have greatly improved their capacity to carry out their functions according to the new law. Overall, public servants carrying out procurement responsibilities are poorly paid and in many cases are frequently reassigned. Poor planningcapacity andmethodologies are a commonproblem, which affects the efficiency o f the procurement system. On the other hand, there has been significant improvement in the area of contract administration and payments to contractors, particularly with respect to works carried out by the Ministry o f Public Works - an area in which these improvements have increased operational efficiency and generated substantial savings. 6. Some o f the UACIs that carry out major projects have a good budget and are technically solid (i.e. the Public Works Ministry and the Road Conservation Fund), but other UACIs are very weak, have very limitedresources, and in general lack adequately- trained personnel. The capacity o f the Municipalities' UACIs is particularly weak as most do not fully understand the new law and have problems implementing the procurement system. Just like in the majority o f UACIs, the staff at the municipalities needtechnical training and assistance in an ongoing and systematic manner to be able to implementsimpleprocurement procedures compatible withtheir needs. El Salvador CPAR vii The ControlandLegalComplianceFramework 7. The control and legal compliance mechanisms o f matters related to public procurement are handled by the Court o f Accounts o f the Republic (CCR), the independent auditing institution that reports to Congress. Despite its efforts and the dedication o f its technical staff - which has a good reputation - the CCR has not attained the prestige and leadership that an independent institution o f this nature should enjoy. The law that regulates CCR activities i s not fully adequate to ensure the independence o f internal audits in government agencies and external audits, as well as coordination between the two. As a result o f this, the results o f the work o f an institution as important as this one are limited with regard to measuring the impact o f Government policies and the achievement of proposed objectives. Furthermore, the Prosecutor General of the Republic (FGR) - which represents the state incontracts to purchase any real or movable property subject to public bid- has to sign all contracts as the legal representative o f the state. The office o f the FGR i s carrying out a merely legalistic function that creates a conflict o f interests for the Prosecutor General, whose mandate i s to represent the state in everything that has to do with public contracts, including investigations into non- fulfillment of contracts that the Prosecutor General himselfhas previously approved. In addition, civil society is not organized enough to effectively shoulder its responsibilities, and has a limited role with regard to monitoring the transparency o f public contracting processes. A few joint actions have been successfully carried out between the government, civil society andthe municipalities. ExternalDriversfor Change 8. Inaddition to internalpressuresto continue with the reform and improvements to the public procurement system, the negotiations for a Central American Free Trade Treaty (TLCCA) are an important incentive for further improvement o f the public procurement and contracting system. TLCCA negotiations were concluded in December 2003, and even though the treaty has preference over the law and in general its public procurement requirements are consistent with LACAP, there are still some technical details that it is advisable to revise in LACAP to make it totally compatible with the treaty. Objectivesofthe CountryProcurementAssessment Review(CPAR) 9. This CPAR was prepared jointly by the World Bank and the Inter-American Development Bank in coordination with the also jointly prepared Country Financial Accountability Assessment and the World Bank's Public Expenditure Review. Its goal i s to serve as a tool for dialogue with the Government o f El Salvador on the topic o f policy and governance, as a basis for the banks to draw up their assistance strategies for the country. 10. In general, procurement financed by the two banks are satisfactory and the risk they imply inthe two banks' portfolios i s not high.Any improvements made inthe public procurement and contracting systemwill heightenthe efficiency o f public spending, help El Salvador CPAR viii to increase the country's capacity for sound economic governance, andbetter align public sector performance with the demands o f a modern and private sector-driven economy. In addition, such improvements will help to increase the use of national systems to implement donor-financed projects and enhance the effectiveness o f Government programs inall sectors, including those that are financed by external sources. Recommendations 11. In order to move forward with the ongoing public procurement modernization programs in an effective and coordinated manner there is, first o f all, a need for strong leadership and commitment at the highest possible level o f Government. The current approach to public procurement modernizationreforms must be re-assessed, with the goal o f updating the strategy to disseminate the new regulatory framework, build political consensus with the support o f all the main stakeholders, and involve civil society in a more effective manner. 12. Itis necessarytojoin efforts to ensure that the UNAC has the authority, resources and capacity required to carry out its functions and play a major role in the public procurement modernization program. A comprehensive institutional strengthening and strategic training plan must be developed and implemented with the support o f the IDB and the World Bank, including a loan to modernize the public sector and a World Bank IDF grant for modernization ofthe public procurement sector. 13. In addition, all UACI's and the control and auditing institutions should be strengthened, while public institutions and their managers should be made more accountable for their decisions. Inthis regard, it i s vitally important to coordinate public procurement reforms with the planned improvements in civil service administration to make the public procurement and contracting function more professional and ensure that selection and promotion decisions for procurement specialists are based on objective criteria. In general, it i s essential that all public procurement reform actions taken be consistent with reforms to the civil service system and any other reforms for modernizationo fthe public sector. 14. Furthermore, it i s necessary to adopt a policy and a strategy to fight corruption and which, in turn, will help to define the functions, enhance the capacity, and provide greater independence to all institutions involved. It also i s necessary to adopt a code o f ethics for public sector employees involved ingovernment procurement activities. 15. As part o f its recently-launched e-government strategy, the Government should develop an e-procurement strategy to be implemented in well-defined stages. From the outset it has to place special emphasis on transparency, setting up an information management system to capture the complete range o f public procurement information, and adopting a monitoring and evaluation system that will allow it to determine up to what degree the reform i s producing the desired results and ifthe system i s helping the state procure goods, works and services in an efficient and economic manner. 16. Finally, it i s very important for implementinglegislation for the law to be enacted and adopted as soon as possible. Over the long term there might be a need to review the El Salvador CPAR ix LACAP for updating purposes, including inthe regulations certain details that are inthe law and to improve it in certain aspects, such as: the use o f direct contracting, purchases by quotations, requirements for guarantees o f the seriousness o f bids and fulfillment of contract, procedures for protests, bid evaluation criteria, penalties and payments to contractors, andthe inclusion o f alternative methods for the resolution o f disputes. 17. Below i s a summary o fthe report's main recommendations. The details are provided inthe proposed action planinchapter VI o f the report: prepare a comprehensive plan for implementation of the Public Administration Procurement and Contracting System. approve the regulations for the LACAP and beginto use it as soon as possible. take concrete actions to consolidate the mandate, organization andmanagement o f the UNAC. prepare a government policy and strategy paper and an action plan to tackle corruption. develop and implement a strategy for specialization inpublic contracts. develop and systematically implement training programs to strengthen the capacities o fthe UNAC and UACIs. develop, establish and maintain an electronic procurement system, as part o f the e-Government strategy, beginning with a module to provide information to the public and gradually moving toward an electronic public biddingsystem. develop, for use by all government agencies, bidding and contract documents that have been harmonized (with the requirements o f international organizations and the LACAP). strengthen the CCR with regard to its independence, autonomy, and impartiality. revise and strengthen the internal control system o f the government agencies. El Salvador CPAR 1 ASSESSMENT OF THE PROCUREMENTSYSTEM I.THEPUBLICSECTOR A. Backpround The publicsector purchasesand the economy 1. El Salvador is the smallest country in Central America and it is also one of the most densely populated in the western hemisphere. With 21,000 square kilometers o f landit has 6.5 millions of inhabitants. Since 1991, when the civil war ended, El Salvador has made significant advances inits economy and on its political and social fronts. Over the last decade, economic growth and price stability superseded economic recession and inflation. Its current GDP per capita i s US$2,200. 2. The Government has made an effort to increase investments to help rebuild the infrastructure damaged by several earthquakes in 2001, Public sector investments during the 2001 - 2003 period reached an average of close to US$ 600 million per year. The major portion o f these investments was used in the construction of roads, hospitals, schools, houses, potable water and electric power infrastructure, and so on. The Ministry of Public Works and the Road Fund(MOP / FOVIAL) execute approximately a third o f the investment, followed by the Ministry of Education (13%) and the Social Investment Fundfor Local Development (FISDL)(8%). 3. The Government spends approximately US$ 1.3 billion annually in the procurement o f goods, services and public works, equivalent to about 9% o f GDP. There are 368 Government Agencies involved in public procurement, o f which 262 are municipal mayoralties and the other 106 are ministries, decentralized entities and public utility companies. The legal framework is definedby the Law on Public Administration Procurement and Contracting (LACAP) enacted by Decree 868 o f May 15, 2000, while the Regulatory Unit for Procurement and Contracting, UNAC - which comes under the Ministry of Finance (MH) - is the regulatory entity responsible for the operation and coordination o f the Public Administration Procurement and Contracting System (SIAC), and also provides advice to the various agencies onprocurement-related functions. Assistance strategiesfrom the IDB andthe WorldBank 4. The IDB strategy for the 2000 - 2003 period focused on helpingthe Government maximize its efforts to maintain economic and social development in the country by means of: (i)economic reactivation with regard to development, stability and competitiveness; (ii)poverty reduction and development o f human capital; and (iii) modernization and governance o fthe State. 5. As o f July 2003, the IDB portfolio consisted o f 18 projects with a total loan amount o f US$ 869 million; 30 non-reimbursable technical assistance operations for close to US$ 12.5 million; another 30 technical assistance operations using FOMIN funds; and five loans for a social enterprises program totaling US$2.4 million. The total disbursemento fthe portfolio was close to 52%. El Salvador CPAR 2 6. As a consequence o f the January - February 2001 earthquakes, the Government was forced to adapt its public investment program to meet the most urgentreconstruction needs. The World Bank strategy for the 2002 - 2004 period, spelled out in its November 2, 2001 Country Assistance Strategy report (CAS), supports the Government program through three objectives: (i) reducing poverty and promoting social development; (ii) speedingup economic growth and creating new opportunities; and(iii) enhancing the role o f the public sector. 7. The World Bank portfolio consists of eight projects under execution backed by a total loan amount o f US$483.6 million. The two most important projects o f this portfolio are a US$142.0 million project for reconstruction o f the damages o f the earthquakes and for public health, and two education projects totaling US$ 146.0 million. In addition, Bank financing is provided for modernization of the public sector, services related to the environment, development o f rural communities, management o f real estate, andjudicial reform. 8. Following their respective strategies, the two banks are financing two technical assistance projects aimed at reinforcing the Government`s capacity to implement its public sector modernization program, including actions to improve transparency and competitiveness in public sector procurement. These two loans (US$ 24.0 and 31.0 million from the WB and the IDB respectively) and a recently-awarded IDF grant from the WB for US$ 0.5 million, approved inJanuary 2003, are helpingthe Government with implementation o f the LACAP, the strengthening o f institutions, and training o f staff at the UNAC and the Institutional Units of Procurement and Contracting (IACIs) at Government agencies and municipalities. Inaddition, the banks' assistance provides for the development o f an Integrated Financial Administration System (SAFI), as well as the strengthening o f the Court o f Accounts, which i s an independent body in charge o f controlling Government activities. Governmenteffortsto strengthenprocurementactivities 9. The country adopted several reform programs during the last decade. The most important o f these reforms i s approval o f the LACAP on April 5, 2000. The LACAP supersededthe Supply Law o f the General Supply Office o f the Republic ineffect since 1946, and the supply laws for the public works and public health sectors in effect since 1953 and 1982, respectively. Approval o f the LACAP unified the legal framework for procurement and contracting for the entire public sector. However, in addition to the regulations, the legal framework must be complemented with homogenous processes to amend and implement said regulations, as well as capable public institutions manned with trained personnel who can live up to the citizens' expectations. The Government is aware o fthese needs and has developed certaininitiatives, including the following: 0 Establishment o f the UNAC, whose main responsibility i s to propose general policies and guidelines for the design, establishment, operation and coordination o fthe SIAC. 0 Establishment of the UACIs, which are responsible for procurement activities in each public sector institution, including the municipalities. El Salvador CPAR 3 As part of the Program for Modernization of the Public Sector, dissemination of the law and capacity-building programs aimed at both public officials and the private sector, through the Technical Secretariat of the Presidency and with IDB support. Support to the UACIs on current and institutional matters, through the Technical Secretariat o fthe Presidency and the UNAC. 10. Despite all o f these efforts, however, as this report went to press it had not yet been possible to establish a standard procurement process at all public agencies, and the SIAC lacks a firm and unifiedprogram that consolidates the procurement modernization process in a conscientious and effective manner. The main challenges for consolidation o f the SIAC are: approval of the LACAP regulations, the strengthening o f public institutions, and the training of staff. Purposesof this CountryProcurementAssessment Report(CPAR) 11. Just like the Banks' other non-financial products, the CPAR is an analytical tool usedto diagnose the status o f a country's procurement and contracting system, and at the same time to promote a dialogue with the government to bring about any reform actions needed. The previous CPAR for El Salvador was completed by the WB in 1991. The main purpose of a CPAR is to identify the actions needed to improve a country's procurement and contracting system, and to agree on an action planwith the Government to implement such actions. The mainpurposes o f this CPAR are the following: 0 To carry out a comprehensive analysis o fthe country's procurement system, from the viewpoint of its legal framework, includingthe organization and management o f the institutions involved their responsibilities and control mechanisms, and current procedures and practices. e To assess certain situations that might crop up in public institutions, such as corruption, a lack o f transparency, and other existingrisks that interfere with both public and private procurement and contracting processes. 0 To assess private sector business practices, in particular those having to do with Government procurement and contracts. 0 To strengthenthe action planthat supports modernization o f the procurement and contracting system to attain improvements inpublic institutions. 0 Central America-US Free Trade Treaty (TLCCA) 12. Since the early 1 9 9 0 ' ~El~ Salvador and the entire Central American region have recognized the importance of integrating their economies with those o f the rest o f the world, and along these lines the strategy o f international economic insertion adopted by El Salvador is based, among other things, on a reciprocal opening of markets negotiated on the international level by means o f the subscription o f Free Trade Treaties (TLC). In this regard, El Salvador has treaties in effect with Mexico, Dominican Republic, Chile and Panama; good progress has been achieved in negotiations with Canada; and negotiations with the United States were completed on December 17, 2003. The TLCCA includes a chapter (Chapter 9 and Annex 9.1) on public procurement, which develops El Salvador CPAR 4 norms aimed at ensuring guarantees for transparency and due process, as well as the conditions under which a Party can gain access to the public contracts market (above certain thresholds established inthe treaty)' o f the other Party. Regarding transparency, the TLCCA specifies a legal framework that ensures the principle o f transparency inthe enforcement o f treaty provisions, as well as the disciplines that will guarantee the fight against corruption intrade betweenthe parties. 13. Homologation o f the LACAP and the TLCCA: The procurement requirements o f the LACAP are very much in line with those o f the draft TLCCA, in the sense that both promote transparency, free competition and efficiency in the procurement processes. However, the terminology and some technical details in the law differ from the requirements o fthe TLCCA: 0 In the event o f a tie in the result of an evaluation o f bid proposals for the procurement o f goods, the national bidwill be givenpreference (Article 55). 0 The requirements that have to be followed for bid invitation announcements are less detailed than those requiredby the TLCCA (Article 47). 0 Minimumtimeframe for preparation ofbidproposals (Article 44). 0 Article 49 o f the law requires payment to obtain bidding documents, while the TLCCA specifies that these documents should be provided free o f charge. 0 The maximum amount allowed for contract change orders (Article 109). Detailedjustification for direct procurement (Articles 40, 71 and 72). 0 Details for the adjustment o fprices during execution o f the contracts (Article 88). Inpractice, these differences should not pose a problem because the LACAP states that the provisions established ininternationaltreaties or agreements regardingmatters related to public procurement and contracting will prevail over the provisions o fthe law. ChallengePosedby the MillenniumAccount (CM) 14. On March 14, 2003 the US Government announced a 50-percent hike in its basic assistance for developing countries over the course o f the next three years, which will result in an increase with regard to the current level o f US$5 billion. These resources, which will go into the Millennium Account to finance any program aimed at improving the countries' economy and living standards, have as their main goal compensating those countries that show, by means o f sensible policies, that they are contributing to reduce poverty and promote national economic growth. The C M resources will be distributed as grants among countries that show a serious commitment toward, among other things, good governance - which implies eradication o f corruption, respect for humanrights, and enforcement o f the country's laws. As required, these programs will be closely 'Thresholds for procurementof goods, services, and constructionworks are US$58,550 andUS$6,725,000 respectively. These will be increased after the third year to US$I17,000 and 8,000,000 respectively. El Salvador CPAR 5 coordinated with other similar programs financed by the Government as well as by bilateral and multilateral organizations. El Salvador is among the countries that are competing to obtain these funds. 15. Fromthe viewpoint of public procurement and contracting, the use of C M funds as well as the opportunities expected from the TLCCA is very much linked to transparency in the procurement processes and the creation of greater opportunities to participate in these processes, thereby enhancing competition and the good use o f public resources. These two initiatives put the Government of El Salvador to test with regardto the efforts that have to be made to successfully implement the LACAP and to define a policy and a strategy to fight against and reduce the levels of corruption. B. Leaal Framework The Law onPublicAdministrationProcurementand Contracting 16. InEl Salvador, the public procurement legal framework is based essentially onthe Constitution o f 1983 and the LACAP, as well as on the provisions o f the Civil Code and the Commercial Code, whichwere amendedin 1993. 17. The LACAP, Decree No. 868 from the Legislative Assembly, is the main legal instrument for public sector procurement. This law was enacted on April 5, 2000, and became effective on May, 15,2000, when it was publishedinthe Official Gazette. Three amendments to the LACAP were issued to clarify that it applies to the municipalities and to small-purchase procurement activities (D.L.No. 204 dated November 30, 2000; D.L. No. 244 dated December 21, 2000; and D.L. No. 593 dated October 31, 2001). The approval o f the law was a big step forward because for the first time ever the country had a procurement law for the entire public sector. After phasing out the General Supply Office and decentralized purchases, all institutions that inthe past used their own bidding procedures, terms, and documents set them aside and are now using uniform regulations andprocedures. Inaddition, previously there was no procurement regulatory entity inthe Salvadorian Government to provide guidelines in the area o f public procurement and contracting. 18. As an essential part o fthe decree approvingthe LACAPthe LegislativeAssembly established the key objectives o f the procurement policy in the whereas clause. These are: 0 Maintainingthe principles o fpublic probity 0 Ensuring efficiency in procurement processes, so that they are carried out in a clear, rapid and timely manner 0 Ensuring rational use o f resources based on the principles o f free competition and public bidding. El Salvador CPAR 6 19. Article 234 o f the Constitution o f El Salvador states than whenever the State has to enter any contract to build works or acquire movables that requires committing public funds or assets, said works or supplies have to be subjected to a public bid, except inthe cases determined by law. Anticipating the requirements o f the TLCCA, the LACAP requirements ensure the opening o f the market to international competition by means o f non-discrimination o f foreign suppliers for national procurement. However, the emphasis placed on transparency o f the processes causedthe LACAP to have considerably detailed rules, which i s probably a good thing until the benefits o f free competition have been proven and probity has been improved, but later on it might become necessary to review and update the law. 20. Other important virtues o f the new Law are: (i) the requirement of an annual procurement and contracting policy for the public sector; (ii) the obligation for all public institutions to prepare an annual procurement and contracting planthat i s compatible with the annual procurement policy; (iii) establishment o f a procurement regulatory agency the responsible for ensuring compliance with the annual procurement policy; issuing instructions, manuals and standard documents; and advising and training all public agencies to help them attain the objectives o f the Law; and (iv) the spirit o f openness o f the Law, which encourages the participation o f suppliers and promotes maximizing competition among them. 21. The LACAP covers all procurement and contracting o f works, goods and services by all Salvadorian institutions, including the municipalities, and their offices and auxiliary organizations, as well as institutions and state-owned companies that are autonomous, and any other organization that commits public funds. Only the following items are not covered by the law: procurement and contracting financed with funds coming from other countries (bilateral agreements) or international bodies; those accomplished through agreements between state institutions; and the contracting o f personal services by public institutions under the provisions o f the Law on Salaries, Contracts and Day Work. 22. In addition to the general provisions on public procurement, some of the most important subjects covered by LACAP are the institutional agreements needed for the proper implementation o f the procurement and contracting system, the authority to contract, the probity o f public servants, the resolution o f conflicts and petitions for review. 23. Institutional Framework. Article 6 o f the LACAP covers the establishment of a Regulatory Unit for Procurement and Contracting (UNAC) that comes under the Ministry o f Finance but i s operationally and technically autonomous. In addition, article 9 o f the Law requires that each public institution must set up an Institutional Unit for Procurement and Contracting (UACI) that will be responsible for operational decentralization and for carrying out all activities related to the procurement and contracting o f works, goods and services. El Salvador CPAR 7 24. Procurement Schedule. As per Article 16 all public institutions have the obligation to draw up an annual program (compatible with the official budget) for the purchase and contracting o f goods, works and non-personal services, in accordance with its work planand budget, which i s o f a public nature. 25. Responsibilities. The competent authority for awarding contracts and approving bidding requirements is the head or the Board/Council o f Directors o f each institution. The Prosecutor General represents the State incontracts for the procurement o freal estate ingeneral and movable property subject to public bidding. For the rest of contracts this responsibility lies with the head o f the institution or whoever he or she designates for this purpose. In the case o f Municipalities it i s the Mayor's responsibility or, in his/her absence, the responsibility o f the person designated by the Municipal Council. At all times the head i s guilty o f negligence in case he/she fails to follow up the actions o f his/her subordinates and will be heldjointly responsible for their actions inthe event o f a breach o f the obligations established inthe law. 26. Bid Evaluation. In order to evaluate bids presented in response to public bids or tenders, either national or international, each institution will set up a Commission. The members o f the commission will be appointed by the head o f the institution in charge. The composition o f these commissions can vary depending on the nature o f the works, goods or services to be acquired. The commission's evaluation o f the bids should be based on technical and economic-financial considerations - with the exception o f contracts for consultancy services in which technical considerations will be the determining factor - using the evaluation criteria established in the bases for the bid or tender. If, after fulfilling all technical specifications, there is a tie score inthe price and other conditions required inthe bid specifications between goods produced inthe country and goods produced abroad, the local offer will have preference. Although this aspect contradicts the general principles established in the TLCCA, in practice it i s not an impediment because the provisions set down in international treaties or agreements prevail over those established inthe procurement law. 27. Contractual modalities. The law regulates the following types o f contracts: a) public works; b) supply (of goods and services other than consulting services), c) consulting services, d) concessions; and e) leasing o f movable property. Aside from the types o f contracts mentioned, the institutions can enter contracts in accordance with the norms o f Common Law, observing everything outlined in the law with regard to preparation, award, and fulfillment. 28. Guarantees. Article 31 o f the law stipulates that, in order to proceed with the procurement or contracting, the contracting institutions should demand that the bidders provide the following guarantees, as the case may be: a) maintenance o f bid; b) considerable advance investment; c) contract performance; and d) quality work. The specifications for the bid or tender can stipulate any other requirement that has to be guaranteed, even though it i s not specified in the law. These guarantees can be surety bonds or bank guarantees issued by local or foreign surety companies, insurance companies or banking institutions authorized by the Superintendent o f the National El Salvador CPAR 8 Financial System. Bank deposits with restrictions, irrevocable letters o f credit that are payable on demand, and any other security or asset that i s easily or readily collectible can also serve as guarantees, provided the contracting institution believes that it sufficiently guarantees its interests. 29. Bidding Methods. The forms o f contracting are public bid, public bid by invitation, public tender, public tender by invitation (the word tender i s used when referring to the contracting of consultancy services), open shopping, and direct contracting. Public biddingi s applicable for the contracting o f goods, works or services when the cost of the contract is more than 635 urbanminimumwages; public bidding by invitation is applicable for the contracting o f goods, works or services whenever the cost i s between 80 and 635 urban minimum wages2; public tender and public tender by invitation i s used for the contracting o f individual consultants when the contract amount i s more than 200 urban minimum wages or between 80 and 200 urban minimum wages, respectively. Open shopping i s used for any procurement or contract that does not exceed 80 urban minimumwages and a price comparison must be made with quotations from a minimumofthree suppliers. This requirement is not applicable when the contract amount does not exceed 10 urbanminimumwages or when only one offer i s available, and inthis case a resolution explaining the reasons must be issued. There i s no limit for direct procurement because it i s applicable only under special circumstances that are described inthe law (LACAP Article 72). Contracts that exceed the amounts established inthe law will be considered null, but those that are below the established amount can use some other type o f contract. The following table shows the amount in US dollars for the various types o f contracting. Determinationof ContractAmounts Works, Goods and Services FromUS $ To US $ Public bid 100,584.01 + Invitation to nublic bid 12.632.00 100.584.00 Open shopping 0.01 12,671.99 Direct contracting None None IndividualConsultants Public tender 3 1,680.01 + Public tender bv invitation 12.672.00 31,680.00 Open shopping 0.01 12,671.99 Direct contractinrr NA NA Openshopping Single supplier 0.01 1584.00 Three suppliers 1584.01 12,671.99 ~~~~ ~ 2 A minimumwage is equal to 1,386 Colones, which is equivalent to US$159.This amount is adjusted from time to time by the Government by means of Executive Decrees. The last decree issued was No. 39 dated May 23,2003. El Salvador CPAR 9 The legalframework 30. Enforcement of the law. The biggest difficulties experienced since the approval of the procurement and contracting law stem from problems arising from the interpretation o f the law and the institutional weakness o f certain public agencies to enforce it in an adequate manner. This i s due, among other things, to a lack o f regulations for implementation o f the law (pending since July 2000) and the fact that some o f the institutions do not have the capacity requiredto interpret and enforce all o f the aspects o f the law. As a way to supplement the regulation and to complete the cycle as far as procedures are concerned, some institutions have drawn up their own manuals o f procedures. 3 1. Paucity of regulations and personnel training. This situation has been worsened as a result of: (a) lack o f approval o f regulations to govern procedural matters and to develop the precepts outlined by the law; and (b) insufficient capacity o f the UNAC to provide adequate training and guidance to clarify concepts and unify criteria. A draft regulation drawn up by the Technical Secretariat o f the Presidency and coordinated with the pilot UACIs and the Finance Ministry is awaiting review and approval by the Secretariat for Legal and Legislative Affairs. From another quarter, the UNAC and the Secretariat o f the Presidency have carried out training programs to disseminate the law, but ongoing training is required, structured by specific topics, and this will require a continuous and unified effort. 32. Bidding methods. Due to the manner in which they are regulated by the law, the description o f public bids and public tenders by invitation turn out to be confusing and inefficient to the institutions because, in practice, these procedures always are handled likepublic events. Inadditionto publishingthe invitation-due to the interpretationmade o f the law - the institutions allow any other interested party to participate in addition to the companies that were invited, inthe same manner inwhich they would handlea public bid, and consequently there is no difference between the two procedures. With regardto direct contracting, the law lists the cases in which this contracting method can be used (Art. 72), but even though it describes urgency as a "serious risk to the general interest" this definition is far too general. The regulation has to be more specific regarding the procedure to be followed for this form o f contracting, for the purpose o f clarifying the types o f situation that pose a grave risk to the general interest and consequently deserve to be described as urgent. 33. Open shopping. A portion o f the procurement and contracting o f goods and services in El Salvador i s accomplished through use o f the Open Shopping method, which consists o f requesting quotations from at least three suppliers. Requests for quotations are a suitable procurement method for the purchase o f low value or standard quality goods and services. 34. For this type o f contracts a long and perhaps costly biddingprocess would not be justified. Nevertheless, it i s important to limit use o f this contracting method by means o f El Salvador CPAR 10 good procurement planning, to avoid the splitting up o f purchases for the purpose o f eludingthe threshold amounts that were set (LACAP, Art. 58). 35. Guarantees: In order to proceed with a procurement or contract, the Law stipulates that the contracting entities must demand that the bidders or contractors present, according to the case, guarantees to ensure: the maintenance o f the bid, sound investment o f the advance payment, contract performance, and good quality work. Furthermore, it stipulates that any other topic that requires a guarantee can be listed inthe specifications for the bid or tender. Because o f the way this provision i s spelled out, the institutions are compelled to demand these guarantees, as the case may be, in the contracts regulated by the law. In practice, it i s common for institutions with scant experience to interpret this requirement literally and to demand the entire menu o f guarantees possible, or several o f them simultaneously - sometimes even requiring additional guarantees - even though they might not be necessary due to the nature o f the contract. For example, it i s not advisable to require certain types o f guarantees for consulting services, and even less so for individual consultants. Inthese cases fulfillment of the guarantees is frequently subject to interpretation and consequently it is easy to use them unduly (for example, as a way to disqualify a bidder). Furthermore, this tends to increase the costs for the institution and o f the consulting services, without producing any evident benefit. Additionally, these costs eventually are transferred to the institution since the firms include them intheir proposals. 36. Amount of the guarantee for maintenance of the bid. The Law provides that the amount o f the Guarantee for Maintenance o f the Bidwill vary between 2% and 5% o f the total amount o f the contract budget. This guarantee is required to provide reasonable protection to the institution and to ensure that the selected bidder will sign the corresponding contract. Therefore, the amount o f this guarantee should be reasonable enough to avoid discouraging serious bidders and therefore decreasing competition, and to avoid increasing the costs for the bidders since eventually these costs will be transferred to the purchasing institution itself. Taking all o f the foregoing into account, in each case the amount of the guarantee for maintenance o f the bid should be carefully studied, taking into account market conditions and the type and amount of the procurement activity. Iti s advisable for the contracting agencies to seek legal counsel and professional advice on the use, selection and preparation o f bid guarantees according to eachparticular case. 37. Availability of bid specijkations. The Law does not stipulate that the bid specifications should be made available to interested parties in the offices o f the institution following publication o f the invitation to bid. The law stipulates only that the interested parties can request them andpick themup ina specified timeframe after paying the corresponding fees. It is important to give interested parties the opportunity to review the documents before purchasing them so that they can decide if their participation i s advisable and to improve access to and transparency o f the bids; in such cases one can demand payment o f the fees for the bid specifications in order to allow participation. It must be mentioned that certain institutions allow interested parties access to bid specifications at no cost. El Salvador CPAR 11 38. Petition for review. Article 18 o f the Constitution establishes the right o f any person to send a petition in writing to the authorities for resolution and to receive information about the resolution. For its part, the LACAP (Article 76) authorizes a petition for reviewfor any decision handed down as part o f a procurement process, which means that the petition for review would apply only to those parts o f the process that are subject to resolution such as the award and the addendas. It is advisable to allow the filing o f petitions at any time during the process, including petitions against the bid specifications. 39. Control by the Office of the Prosecutor General. Article 193, paragraph 5 o f the Constitution o f the Republic o f El Salvador establishes that the office o f the prosecutor general i s charged with representing the State in all contracts related to the procurement o f real estate ingeneral and o f movable property subject to biddingprocedures, and inall other contracts determined by law. This same provision i s reflected in the Law, which specifies that signing o f all other contracts i s the responsibility o f the person in charge o f the institution or the person that he or she designates. Although this is a constitutional obligation, its purpose is not altogether clear because if the objective i s for the prosecutor general to legally represent the state, this might give rise to a conflict o f interests or ulterior responsibilities for the Office o f the Prosecutor (Paragraph 55). The role o f the Office o f the Prosecutor General inpublic procurement merits a review. 40. Bid Evaluation. Article 55 o f the Law establishes that bid evaluation commissions should evaluate the technical and economic-financial aspects o f the bids in accordance with the evaluation criteria established in the bid specifications, in order to award the contract to the best evaluated proposal (paragraph SO). Consultant services contracts are excluded from this general rule, but it is specified that in this case the technical aspects should be the determinant factor inthe evaluation o f proposals (Article 55). A selection based on quality and cost for consultant services contracts i s advisable when the nature o f the work to be performed allows it, becausebetter prices can be obtained. The weighted cost factor should be carefully assessed in each case, taking into account the complexity o f the work and the relative importance o f its quality. Generally, selection based purely and exclusively on technical aspects i s advisable when dealing with complex or highly specialized works or works that require that the bid proposal itself contribute innovative methods. To the contrary, when dealing with the contracting of standard or routine consultant services, for which well established practices and regulations exist (i.e. audits, technical design o f not very complex works, etc.), the weighted factor granted to price should be chosen in keeping with the intellectual or professional contribution o f the consultant, but the quality o f the consultant and the technical proposal should prevail during the evaluation. For consultant services, the LACAP stipulates that the evaluation o f technical aspects should be the determinant factor in the selection o f the consultant (Article 55) but it does not mention selection based on quality andprice negotiation. 41. Perfecting of contracts. Article 79 o f the Law establishes that contracts governed by the Law are perfected and formalized through the signingo fthe pertinent instruments, except open shopping contracts which require only the issuance o f a purchase order or El Salvador CPAR 12 invoice. However, modern theory on administrative procurement maintains that an administrative contract i s perfected at the time o f notification or certifiable communication o f notification, which i s a reciprocal manifestation o f the will' o f the parties. This, which at first sight might seem like a purelytheoretical discussion, can have important practical consequences because it creates rights and obligations for the parties from that moment onward. For example, inthe case o f Article 79 o f the Law, if a bidder were to withdraw its proposal following the award and notification o f the award, but before the contract i s signed, it does not incur in non-fulfillment o f contract because the contract has not yet been perfected. However, even though it i s important from the evidence and audit standpoints, a written document signed by the two parties merely represents formalization and not the birtho f the contract. 42. Implementation of contract. The LACAP contains several provisions for the implementation o f contracts, and the following should be underscored: The guarantees for contract performance (Article 35) and good quality work (Article 37). For works contracts, articles 115 and 116 establish the conditions and timeframes for the provisional and definitive acceptance o f the works, which must be taken into account in order to determine the periods of validity of the guarantees. The UNAC should be able to determine procedures for these articles by means o f guidelines for the purpose of ensuring consistency and to avoid confusion regarding the periods covered by the guarantees. Penalties for delays (Article 85). This article sets incremental fines according to the number o f days of delay, but the mechanism for the enforcement of such penalties i s somewhat confusing and might become a cause for dispute and mismanagement. The regulation o f the Law should clarify the method o f enforcing the fines, but it would be better just to simplify the requirement. Payments to contractors. The Law i s weak with regard to the contracting party's obligations to make payments, and leaves the definition o f timeframes and method o f payment to be determined in the specifications for each bid; for example, the law does not establish a maximum timefiame allowed for making payments. The international practice consists o f making payments within 30 days from the date the payment request i s submitted. The Law does not make reference to payment methods either - such as payments in foreign currency - but it does contain provisions for compensation due to delayed payments (Article 84) and a price adjustment for contracts that will take more than 12 months to complete (Article 88). The Law also contemplates expiration o f the contract due to delay in timely payment by the contracting party (Article 94). 43. Resolution of disputes. Articles 161 through 169 o f the Law provide for direct settlement and arbitration in cases o f dispute. However, the law does not consider other alternative methods for resolution o f disputes, such as, for example, an independent adjudicator. Additionally, there i s the Mediation, Conciliation and Arbitration Law approved in July 2002 that gives the arbitration decision the same force and validity o f a El Salvador CPAR 13 court ruling and establishesother options for resolution of disputes.This law is integrated into the LACAP provisions by means of Article 25. C.Institutional aspectsand organization StructureandOrganization 44. Enactment of the LACAP set off the decentralization of procurement activities, in keeping with the principle of centralization of regulations and decentralization of operations. The LACAP establishedthe UNAC as an entity under the Ministryof Finance in charge of promoting coherent guidelines and procedures, according to the Law, to be observed in the design, establishment, operation and coordination of the SIAC. The coordination structure of the SIAC is shown inthe chart on the following page. The law assigns procurement responsibility to each contracting agency, which has to establish its own Institutional Unit of Procurement and Contracting (UACI). One of the most important functions of the UNAC is to advise public institutions so that they can carry out their functions related to procurement and contracting. The UNAC is incharge of: a) Proposingto the Ministryof Finance an annual policy for public administration procurement and contracting; b) Issuing general policies and guidelines for the design, implementation, operation and coordination of the SIAC; c) Issuing instructions, manualsand other instruments to facilitate attainment ofthe objectives ofthe law; d) Advising andtraining the UACIs inthe preparationoftechnical documents; training, promoting, providing technical assistance and following up the UACIs to ensure compliance with all of the norms included inthe law and inits regulation; e) Supporting the implementation of measures of a general nature considered advisableto improve the SIAC inits operational, technical and economic aspects; f ) Reviewingand updating general policies and technical instrumentsinaccordance withthe Law andits Regulation; g) Establishing guidancemanualsonthe documents neededto carry out the procurement and contracting activities of Public Administration; h) Establishing andmaintaining aNationalRegistry of Public Administration Procurementand Contracting, which should include updated informationabout the nature, amount and degree of compliance ofthe obligations contracted with public administration; and i) Any other activities assignedto the UNAC by a senior authority. El Salvador CPAR 14 SIAC COORDINATION STRUCTURE COURT OF ACCOUNTS I SIAC STRUCTURE *.......... I INTERNAL AUDITORS 45. In order to perform its duties, the UNAC has 17 public servants including its Chief, a legal advisor and 12 professionals distributed over three work areas: managementcoordination, operations and informatics. The`management coordination unit attends to the internal operation of the UNAC, with emphasis on personnel training and capacity-building and the development and implementation ofthe procurementsystem. 0 The operations unit is in charge of UACI training programs and resolving UACI queries. 0 The informatics unit is responsible for developing and implementing the information management system, including a database. El Salvador CPAR 15 Even though the distribution of duties among the units seems sensible, the units have been attending solely to essential activities since they started to operate in2001. Some o f these activities are: the training program, preparation o f a management manual to assist the UACIs, andthe designo fanelectronic procurement system. 46. As of the date o fthis report, perhaps the unit that is most inneed of strengthening i s the informatics unit, which i s operating with three experts borrowed from other areas o f the Ministry o f Finance. Likewise, the coordination unit has to coordinate with the other government institutions involved in training to be able to properly attend to the training program requiredby the UACIs, because at times its efforts have been isolated from the activities carried out by the procurement and contracting component o f the Commission for Modernization o f the Public Sector o f the Technical Secretariat o f the Presidency with regard to training on the LACAP. Furthermore, on occasion the UACIs are confused about who they should contact for advice. 47. Although Article 171 in LACAP establishes that the President o f the Republic should approve the LACAP regulation within 90 days after the law becomes effective (June 29, 2000) (45 days after its publication inthe official gazette), the law i s not clear about which institution i s responsible for preparing said regulation. A lack o f coordination between the interested institutions and a lack o f interest o f the ranking authorities who are responsible for the regulation have contributed to the delay in the issuingo f the regulation. As o fthe date o f completion o fthis report the regulation o f the Law has not yet been approved by the Presidency's Secretariat for Legal Affairs. The Bank was recently informed that a regulation agreed upon by the Technical Secretariat, the UNAC and the most important UACIs has been sent to the Secretariat for Legal Affairs and that approval i s expected shortly. 48. Inshort, the UNAC is a young organization with clear objectives and devoted to its work, but it i s still weak, and this i s why it has not achieved the necessary credibility with the UACIs. The UNAC's main problems stem from frequent changes in its management (the Chiefhas been changed three times inthe three years since UNAC was established), and its isolation from the Technical Secretariat o f the Presidency. Additionally, the lack of the regulation of the law has led to misinterpretations by some officials regarding enforcement o f the law and at times has caused misunderstandings with the UACIs and with the Technical Secretariat. Inaddition to these inconveniences caused by the environment in which it operates, the UNAC also confronts internal challenges due to a shortage o f qualified technical personnel and the lack o f an agile and adequate information system. Inconsequence, the UNAC needs to: Have the regulation o f the law available as soon as possible. Consolidate its mandate, organizational structure, and internal management. Givemore emphasis to professional and technical training o f its personnel. Speed up the development anduse of its information system. 49. The LACAP requires each public institution to have a UACI. These ,units are responsible for all activities related to management of the procurement and contracting o f El Salvador CPAR 16 works, goods and services, and are organized according to the needs and characteristics o f each entity or institution and are directly answerable to said entity or institution. 50. The UACIs are incharge o fthe following: a) Ensuringcompliance with policies, guidelines andtechnical provisions established by the UNAC, and performing all o f the procurement and contracting processes established inthe Law; b) Serving as the liaison betweenthe UNAC and the offices o f the institution with regard to technical activities, the flow and recording o f information, and other aspects derived from the management o f procurement and contracting activities; c) Preparing, in coordination with the Institutional Financial Unit (UFI), an annual schedule for the purchase, procurement and contracting o f works, goods and services. This annual schedule should be compatible with the annual policy for public administration procurement and contracting, the institutional work plan, the budget, and the schedule for executionofthe current fiscal year budget andits amendments; d) Verifying the budget allocation before starting any bid or tender process for the contracting o f works, goods and services; e) Adapting, together with the requesting unit, the specifications for the bid or tender, in accordance with the guidance manuals provided by the W A C , and in accordance with the type o f contract to be entered; f) Receiving and opening bidoffers and preparing the respective minutes; g) Carrying out the process o f procurement and contracting o f works, goods and services, as well as maintaining a file o f each process; h) Requesting the advice o f qualified experts or technicians whenever it i s required by the nature o fthe procurement or contract; i) Preparing, together withthe requestingunitandwhenrequiredbythe case, a record o f the total or partial reception o f the procurement or contracting o f works, goods and services, inaccordance withthe provisions ofthe regulationo fthe Law; j) Controlling and updating the institutional database o f bidders and contractors. (The UACIs are obliged to maintain information about all procurement activities performed during the last 10 years, in order to allow their assessment and oversight by the competent bodies andentities); k) Based on contract performance assessments, maintaining an updated registry o f contractors, especially when the works, goods or services do not meet contract specifications or the contractor incurs in any infraction, and providing a written report to the heado fthe institution; 1) Assessing the qualifications o f potential local or foreign bidders, as well as reviewingand updating said qualifications at least once a year; m) Periodically informing the head o fthe institution about any contracts entered; n) Providing the bid evaluation committee any assistance it might need in order to perform its duties; 0) Supervising, overseeing and establishing inventory control methods inaccordance withthe mechanisms established inthe regulation ofthe law; p) Providing to the UNAC in a rapid and timely manner any information it might require; and El Salvador CPAR 17 q) Complying with and ensuring compliance with all o fthe other responsibilities established inthis Law and inits Regulation. 51. There are some 368 UACIs all over the country, including some 262 municipal UACIs and 106 o f them in Government agencies. The latter UACIs are characterized by the heterogeneity of their organizational strength and their capacity to carry out the functions assigned to them by Law. Only the leads UACIs, in terms of the volume and complexity o f their procurements, have developed or are developing suitable capacities in order to fulfill their mandates. Foremost among them are the MOP, the Road Conservation Fund, the Ministry of Education, the Ministry o f Health, and the Social Security Institute (ISS). 52. The effort made by the authorities o f the Ministry o f Public Works (MOP) during the process to transform this institution deserves special mention. Inthe year 2001, this ministry launched an organizational restructuring process through a voluntary planthat prompted the departure o f 7,761 employees, leaving only 741 employees in the institution. As a result of such restructuring, many o f the services in the Ministry are contracted out to the private sector, including companies formed by some former MOP employees. Furthermore, and with the goal of improving efficiency levels, the MOP is working to develop new work processes andprocedures. Attention i s drawn, inparticular, to the operation o f its UACI, which i s well structured, has highly qualified personnel, has demonstrated efficiency and transparency while carrying out its activities, and i s considered a model organization within its professional environment. 53. With the exception o f the leading institutions mentioned earlier, the situation o f the majority o fUACIs that operate within Government agencies is difficult becausemany o f them are weak and perceive the requirements in the law as complex and difficult to enforce. However, it i s a fact that the procurement performed by most UACIs is simple and o f relatively low value, while the complex and high-riskoperations are concentrated in the UACIs of the leading institutions. This shows that organizational and operational and control mechanisms should be designed taking into account the size ofthe operations and the risks involved in agency procurement. Inaddition, it i s necessary to improve the inter-institutional relationship with the other offices of the Ministry or agency under which they operate. Currently, many UACIs are confronting problems similar to those o f the UNAC, especially with regard to human resources. Although they have some talented, well-trained and enthusiastic individuals, careful and continuous attention must be givento the employee's knowledge level, capacity and experience. 54. The UACIs in the municipalities confront more complex challenges than their counterparts at Government agencies because they are autonomous and more disperse, and have a high rotation of personnel and less resource. The assessments made by the Court o f Accounts in its audits show that the financial management, accounting, and procurement systems complement one another and that the municipalities generally encounter several problems: a) Inadequate use of the accounting system and deficient records-keeping El Salvador CPAR 18 b) Lack of control on income c) Existence o f fund disbursement documents that do not meet legal requirements d) Lack ofknowledge about real estate ownedby the municipality e) Insufficiency o f internal audits and insome cases non-compliance with recommendations made by the Court of Accounts f) Income and expense budgetswithout sufficient information g) Scant citizenparticipation inthe identificationand classification o fprojects according to priority On the specific topic o f procurement, there i s an unsatisfactory implementation o f projects, including: (i) deficiencies in the technical and economic analysis o f the offers; (ii)smallamountofbidders;(iii) useofpublicbids;and(iv)acceptanceofworks a scant underterms different fromthose that were agreedupon. 55. For their part, the municipalities perceive the system as something complicated andconfusing that obliges them to use documents andprocedures with which they are not very familiar, thereby increasing their problems o f efficient use o f their scarce resources. Nevertheless, they recognize the reduced capacity of their UACIs. Similarly to the rest o f the UACIs, the municipal UACIs need a systematic and sustained effort in personnel training as well as assistance with the installation o f simple systems for procurement functions. Inthis regard, the Technical Secretariat o fthe Presidency - within the Program for Modernization o f the Public Sector and with IDB support - i s implementing, through the Institutefor Municipal Development (ISDEM), a training program addressedmainly to the municipalities. During the 2000-2003 period, some 3,000 public employees were trained on the content and enforcement of the law under this program. In 2003 alone, about 1,000 public employees received training, and o f this amount some 700 were from the municipalities. This initiative, however, needs to be better coordinated with the W A C . Budget ExecutionandFinancialAdministration 56. Since 1995, El Salvador has made efforts aimed at modernizing the financial management o f its public sector. Legislative Decree No. 516 - the Organic Law o f State Financial Administration -i s the standard that establishes a coordinated integration o f the administrative systems o f Budget, Treasury, Governmental Accounting and Public Credit. The purpose o f the Comprehensive Financial AdministrationSystem (SAFI) i s to create such financial administration coordinating mechanisms among the entities and institutions in the public sector, and to establish economy, efficiency and effectiveness criteria for obtaining and using public resources. Similarly to the SIAC, the SAFI i s governed by the principle o f centralizing the regulatory function and decentralizing operational functions. The SAFI i s made up o f the four aforementioned administrative sub-systems, andthe FinanceMinistry is the ruler o fthe system. 57. The Finance Ministry is in charge o f ensuring the functions o f Financial Administration. The Budget Section o f the National Public Investment System i s in charge of scheduling, executing and following up on the investments made by public El Salvador CPAR 19 entities and institutions. In accordance with the Organic Law o f State Financial Administration, the Ministry o f Finance i s in charge o f drafting the budget policy and presenting it to the President o f the Republic for discussion and approval by the Council o f Ministers no later than the second half o f April each year. The Ministry o f Finance i s responsible for reviewing the draft budgets received from public entities to ensure that they conform to budget policy, and have to make the necessary adjustments before drafting the bill for the State General Budget Law. 58. In 2004 the World Bank issued an assessment of the financial administration system (Country Financial Accountability Assessment, CFAA). The CFAA's objectives include an assessment o f the status o f the modernization o f said system. Since the CFAA and CPAR are complementary reports, work for the preparation o f the two reports was duly coordinated. Controlandaudits of Governmentoperationsandthe ProsecutorGeneral'sRole 59. The control organization o f the Salvadorian State is the Court o f Accounts o f the Republic, which submits an annual report on its work to the Legislative Assembly. The Court o f Accounts is responsible for overseeing the administrative and jurisdictional aspects o f the public treasury, especially execution o f the budget.Also worthy o f mention i s the Public Prosecution System (Ministerio Phblico), which i s made up o f the Office o f the Prosecutor General o f the Republic in charge o f defending the interests o f the State and society; the Office o fthe Attorney General of the Republic that is responsible for the defense o f the family and individuals, including the interests o f minors and other defenseless individuals; andthe Office for the Defense o f Human Rights. 60. As explained earlier, all government agencies that hold bids or enter contracts to acquire real estate in general or movable property subject to public bidding, are obliged to request the intervention o f the Prosecutor General, who has to appear in order to sign said documents or contracts inrepresentation o f the State, or the contracting institutions, inthe latter case whenever said responsibility has not beenlegally transferred to another entity or official. Likewise, the Prosecutor General investigates - ex officio or in response to petition from a party - any non-fulfillment or contravention inthe actions or contracts entered into by the State, public law institutions, or public utility. 61. In addition to performing as the State's representative in all movable property contracts subject to public bidding, the Prosecutor General's Office performs a legal review o f these contracts since they have to be signed by the Prosecutor General. This requirement creates unnecessary bottlenecks, because the Prosecutor General's Office merely reviews the legal requirements o f procurement and the added value o f its contribution i s relatively small. This type o f ex ante control by an independent body dilutes responsibility and might create a conflict o f interest. For example, inthe event an irregularity 0; illegality were to be discovered later on in any contract that has been approved by the Prosecutor General's Office, since it i s this very Office that is incharge o f undertaking criminal processes inorder to investigate any illegality derived from those actions. In order to avoid conflicts with his prosecuting tasks, the Prosecutor General's duties with regard to the signing o f contracts should be reviewed. As a result o f this situation, the Prosecutor General o f the Republic has tried to propose changes to the Constitution inorder to release his office from the responsibility o f signing contracts. El Salvador CPAR 20 62. The system for auditing Government operations i s outlined in the Law o f Accounts o f the Republic (Decree 438, 1995) that establishes the Court o f Accounts o f the Republic (CCR) as an independentbody incharge o f supervising the management of resources by the Administration or by entities that handle public assets or funds. The CCR also i s responsible for the National System for the Control and Audit o f Public Management. The CCR reports directly to the National Assembly. According to the provisions o f the law, the internal and external audit procedures should be exercised after the performance o f the public actions and are subject to the CCR, while prior and concurrent internal control activities are the responsibility o f the officials incharge o f the daily operations o f the institutions and are regulated by the Internal Control Technical Standards prepared by the CCR (Decree 15, 2000). The CCR i s responsible for confirming that public resources have been used in accordance with their purposes, and for assessing and makingrecommendations about the effectiveness and efficiency o f the institutions' operational systems usedto manage the resources. The Law also assigns the CCR the task o f determining the administrative responsibility o f public servants by means of accounts trials. 63. The CCR is organized as three general coordination units for auditing, jurisdictional and administrative (operations, including process auditing) issues. The General Coordination Unit for Audits i s in charge o f performing Court audits, including processes having to do with procurement, while the General Coordination Unit for Jurisdictional Issues i s responsible for handlingaccounts trials resulting from disciplinary investigations related to the official behavior o f individuals who perform public functions. 64. The CCR has approximately 950 employees, including some 400 auditors, and in the year 2002 it carried out a total of 689 control activities, 46% o f which corresponded to audits and 54% to special tests. As a result o f such activities there were 4,717 findings; 39% o f which correspond to internal control weaknesses in the audited institutions. The following chart summarizes the number o f findings by origin and management sector. RESULTOFAUDITS INTHE YEAR 2002 By origin Number % By management sector Number % Financial 1062 23 Administrative 969 20 Internalcontrol 1839 39 Justice and economy 317 8 Legal compliance 1656 35 Social and environment 1535 32 Administrative 160 3 Municipal 1872 40 External cooperation 24 Total 4717 100 Total 4717 100 65. On the topic o f financial audits and special tests, it i s important to note the effort made by the CCR with regard to municipal sector audits, to which it devotes close to 50% o f its effort in this field. These audits have gained importance because o f the administrative decentralization process and the assignment o f 6% o f the FODES budget El Salvador CPAR 21 to municipal development. Many o f these audits have been o f the operations type and have resulted in recommendations for improvements in administrative (strategic plans, organizational structure, etc.) and financial aspects, such as implementation o f the government accounting system and strengtheningo f internal control. It i s also important to mention the existing agreement between the CCR and USAID by means o f which the CCR performs audits and special tests o f the projects financed by USAID, inaccordance with audit regulations and guidelines issuedby the Comptroller o f the UnitedStates. This job i s performed ina very diligent manner by the CCR. 66. In spite of these achievements and the dedication of its technical personnel, the CCR does not enjoy the prestige and leadership that corresponds to an independent organization that i s responsible for supervising Government activities: (i)the law o f accounts needs to be updated and to take into account modern auditing concepts and the reality o f El Salvador. In 1995 the law apparently was adapted to the constitutional reforms, but not sufficiently enough to satisfy contemporary control and audit concepts, such as the independence o f internal and external audits and coordination between them; (ii) CCRdoesnothavetrueindependencetocarryoutitsdutiesand,intheopinionof the many of the persons interviewed, there is a lot ofpolitical interference that compromises its autonomy and impartiality. Inorder to resolve this problem staunch political will from the state i s required, as well as a firm determination by the CCR to gain the respect it deserves; (iii)the relationship between internal audits made by the institutions and external audits should be reviewed taking into account the coordination and independence that should exist between them; and finally, (iv) inits assessmentsthe CCR should pay more attention to the efficiency and effectiveness o f results than to strictly legal and proceduralformalities3 67. According to the provisions of the Law o f Accounts andthe CCR Internal Control Technical Standards, internal control consists o f the control system that each entity should use to achieve its objectives inan efficient, effective and economic manner, while an internal audit is an after-the-fact exercise that measures the effectiveness o f the other internal controls and attains its top goal when it recommends improvements to management and said improvements are implemented. Due to their limited capacities, only the larger institutions have installed internal control and audit systems along the lines o f those required by the legislation. Most Government and municipal agencies suffer problems similar to those mentioned for the CCR: a lack o f trained personnel, a meager budget and more attention paidto formalities thanto results. 68. The President and magistrates o f the CCR are appointed by the National Assembly and consequently their appointments have political implications. Since 1994 several efforts were made in El Salvador to amend the portion o f the Constitution related to the CCR, proposing conversion o f the CCR into a Comptroller's Office and having its These recommendationsconcur withthe findings andsuggestions o f the CFAA, which recommends, amongother things, over the mediumterm assigningthe responsibility of regulating anddesigningagency internalcontrols to the Executive Branchwhile maintainingthe CCR's externalassessments.Ina similar manner, the CFAA suggests that the CCR's legalfunctions betransferredto thejudicial branch. El Salvador CPAR 22 officials elected by a majority vote. Unfortunately these initiatives were unsuccessful and the topic has not beenbrought up again. Humanresources 69. The implementation o fthe SIAC, announced inLACAP, has created a demand for specialists in procurement and contract management that i s estimated at some 600 individuals. There are capable officials already working in the UACIs at the more important ministries o f the Salvadorian Government - especially in the MOP and the units in charge of carrying out the programs and projects financed by international agencies or bilateral donors - who have vast experience in public sector bids. The knowledge acquired by the government officials i s generally achieved through practice, with all the negative effects that this implies due to the existing institutional weaknesses. The UNAC and the State Modernization Unit o f the Secretariat o f the Presidency are making efforts inthis area and are developing a formal training program to attend to all the needs o f the procurement and contracting sector. Recently, the Technical Secretariat o f the Presidency hired a consultant whose terms o f reference include the creation o f a procurement training program for the UACIs. Ingeneral, the officials inthis area receive low salaries, which can be a problem for a topic such as public procurement that i s particularly susceptible from the viewpoint o f ethics and transparency. In addition, personnel rotation i s very common in U A C I positions, which results in losing the experience acquired and frequently having to start again from zero. The described situation i s even more critical inthe municipal UACIs, especially inthe smaller ones. 70. There i s an evident need to make public contracting more professional and to establish a permanent training system for public servants involved in procurement and contracting. The training program could be handled by the Government or jointly with an academic institution. Any such program should be coordinated by the UNAC, which by law i s tasked with providing training and advice to the UACIs. The training o f officials should be linked to a strategy o f training professionals, so that they can become "certified professionals" and said certification can be taken into account whenever it i s necessary to hire personnel, make appointments, and make promotion and career decisions. At the same time, it i s vitally important to address the salary issue o f these officials in order to attract the best qualified professionals, such as those who work in the project implementing units o f internationally-financed projects. At the same time, this would improve the current differences in salary for posts with the very same functions. Finally, it is very importantto ensure that highlevelpositions inthe procurement sector are filled with individuals of recognized technical, human and professional capacity who can rely on the required support from their superiors. 71. UNDP participation. Participation by the UNDP in contracting and contract administration has been very limited. As part o f the program to reform government contracting, the Government's policy i s to continue strengthening the institutional structure o f public agencies in such a way that each agency will have its own U A C I to take care o f procurement processes and its own UFI to make the payments. The only recent case o f UNDP participation i s in the secondary education project funded by the World Bank (loan 4224-ES that ends inDecember 2004). Under this project, the UNDP was hired by the Government as a procurement agent for the purchase o f books, equipment and vehicles duringthe first year ofproject implementation, and as a payment agent as well. In practice, the procurement services did not materialize and the Government carried out all procurement, and UNDP was used only as a payment agent to overcome the obstacles o f disbursing funds from the special account. D. Controlsvstem and measuresagainst corruption 72. Although violence, unemployment and poverty are the most worrisome problems for Salvadorian society, the fight against corruption also has become an issue o f concern for the Government as well as for the different sectors o f society. In keeping with this concern the country has signed and ratified the Inter-American Convention against Corruption. The convention has been converted into law and i s in effect throughout the country, but not all necessary measures have been taken to place the envisioned mechanisms into operation. Transparency International's Corruption Perception Indexfor the year 2002 places El Salvador at number 62 inthe 102 countries assessed. Although this indicator is still controversial for many, itconstitutes animportant negative signal for investors. The following chart gives an idea o f the performance o f institutions in El Salvador in relation to other Latin American countries. The situation is not critical, but the rate o f governance shows that El Salvador is slightly below the Latin American regional average. CLASSIFICATIONOF LATINAMERICAN COUNTRIESACCORDING TO THE STATUSOF THEIR GOVERNANCE COUNTRY CORRUPTION COMPLIANCE GOVERNMENT CONTROL WITH THE LAW EFFECTIVENESS Chile 1 1 1 CostaRica 2 3 3 TrinidadTobago 3 4 4 Bahamas 4 2 5 Uruguay 5 7 2 Cuba 6 8 19 Brazil 7 10 12 Suriname 8 21 11 Guyana 9 9 9 Jamaica 10 20 18 Peru 11 14 8 Argentina 12 6 6 Mexico 13 13 9 Bolivia 14 11 13 El Salvador 15 15 15 Panama 16 11 16 Colombia 17 22 10 El Salvador CPAR 24 Haiti 18 25 25 Venezuela 19 16 23 Dominican Republic 20 5 22 Ecuador 21 18 21 Guatemala 22 24 14 Nicaragua 23 19 20 Honduras 24 23 17 Paraguay 25 17 24 Reference: World Bank Institute, Worldwide GovernanceResearchIndicators dataset. 73. The efforts to make government management activities transparent and to create the habit o f rendering accounts are still incipient, and an example o f this are the conclusions o f a `National Integrity Journey' workshop organized by Transparency International and Probity, a non governmental organization that began working in El Salvador in 1994. Some o f the most important issues addressed in the report about this workshop are: The difficulties encountered while trying to access information, including factors such as weakness o f institutional records, unreliable information, and information that has not been systematized; Transparency and the habit o frendering accounts i s incipient; 0 The work being done by the probity office, which is in charge o f enforcing the law on illicit enrichment o f public officials and employees, is still incipient; The lack o f independence andimpartiality o f some communications media; and Incipient participation by the citizens inthe fight against corruption. 74. An explanation for this last point can be found inthe results o f a study carried out by USAID, `Audit o f Democracy, El Salvador 1999,' that reported, among other findings, that "the corruption observed by the citizens as they go about their daily affairs i s less common than inother LatinAmerican countries". 75. Over the recent past the Government and society have made a few efforts, such as the aforementioned study on democracy, to beginto develop a better-definedpolicy and strategy to battle corruption. For its part, the State has taken actions such as a reform o f the Office of the Prosecutor General of the Republic and the Police Department; the appointment o f a special public prosecutor to look into fake professional credentials; and promotion o f improvements to the legal framework for procurement. The legal instruments related to the fight against corruption and their amendments include the following: The Political Constitution o f the Republic, inparticular Title VI11that establishes the responsibilitieso fpublic servants The criminal code El Salvador CPAR 25 0 LACAP (2000), which guarantees free competition and no discrimination in procurement, in addition to penalties for public officials who do not fulfill their duties correctly 0 The Law o f the Court o f Accounts o f the Republic (1995) that establishes a national system for the control and audit o f government activities 0 The L a w on Illicit Enrichment o f Public Officials and Employees (1959) 0 The Internal Control Technical Regulations prepared by the CCR (2000) 0 The Organic Law o f State FinancialAdministration and its regulation 0 The law against the launderingo f money and assets The civil service law 76. In addition to these efforts there is a proposal from the Corporation of Municipalities o f the Republic o f El Salvador (COMURES) to draw up a law on municipal transparency and a draft bill on public ethics, prepared by the CCR as part o f anagreement with USAID. 77. The legal framework should be complemented with codes o f ethics and probity that go beyond observance o f the law into aspects o f personal conduct. In addition, it i s necessary to ensure that implementation o f the regulations will include the appropriate measures for enforcement o f the rules as well as qualified institutions that are respected by the citizens. With regardto citizen participation, initiatives at the municipal level can have a substantial impact not only on municipal administration, but also on citizen capacity-building. However, within the national environment, action by a joint state - citizens commission i s needed; a commission that can act independently and will have the necessary political support. The first activity o fthis commission shouldbe to prepare a policy, a strategy and a detailed planto fight corruption. 78. For the time being, the Government has a political commitment to develop a program for a direct attack on corruption. (A Secure Country: 2004-2009 Government Plan) and could require technical assistance from international institutions to draft a document on the anti-corruption policy as well as a strategy to put such a policy into practice. Responsibilitiesof publicservants 79. Title VI11 o f the Political Constitution o f the Republic establishes the responsibilities o f high level public servants, including the President, deputies, cabinet ministers, magistrates, prosecutor general, attorney general and others, who have to respond to the Legislative Assembly for any public or common crime they may commit. Said regulation also establishes a procedure for the Assembly itself to declare if there i s reason or not to prosecute. In the event reason to prosecute i s found, the case will be handled by a second instance court as the first instance, and by the Supreme Court of Justice as the second instance. 80. The deputies have the same rights as the other public servants mentioned in the preceding paragraph, but with the particularity that if they commit faults or offenses El Salvador CPAR 26 considered as "less serious" during the term for which they were elected, they cannot be detained or summoned to declare untilthe term they were elected for has expired. 81. Article 240 o f the Constitution defines illicit enrichment. Certain government officials and employees specified in the Law on Illicit Enrichment o f Public Servants (approved in 1959 and later amended in 1974and 1992) are compelled to declare their assets to the Supreme Court o f Justice within 60 days after taking possession o ftheir post and to file another statement o f assets when they leave the post. Any employee found to have assets that cannot be justified will be obliged to restore to the State whatever was acquired in an illicit manner. Inaddition, the Law establishes penalties that include fines and removal from the post for non-presentation of the statement of assets, as well as disqualification from holding a public post for a ten-year period for whoever i s found guilty o f illicit enrichment. Nevertheless, the penalties established in the Law for public servants who are guilty o f the crime o f corruption and obtain money without a just cause are only o f a civil (restitution o f whatever was illicitly acquired) or administrative nature (removal from hisher post). Prison sentences for public employees are provided for in Chapter 14 o fthe Penal Code. 82. Due to its attributes, the Probity Section o f the Supreme Court o f Justice i s limited to receiving the statement o f assets and classifying and filing them, as well as to report any indication o f illicit enrichment to the Supreme Court itself. However, said Section does not have the capacity to investigate the statement o f assets or to launch a criminal process against any official who might have committed a crime o f illicit enrichment. The person responsible for representing the State in court trials for the crime o f corruption is the Prosecutor General of the Republic, in response to reports from the CCR or complaints from the citizens. The public officials mentioned in the Law also are compelled to present a sworn statement o f earnings when taking possession o f the post and another when leaving the post, but the Supreme Court o f Justice does not have the meansneededto confirm the veracity ofthese sworn statements. 83. Finally, Title VI1 o f the Law on Procurement and Contracting establishes penalties for those public officials who commit irregularities or who do not properly carry out their functions in public procurement operations. Said penalties range from written admonitions through suspension without pay, all the way up to dismissal for cause and removal from the post, without detriment to the respective criminal and administrative actions that can be taken. The LACAP also imposes penalties on private parties, disqualifying them from participating inGovernment procurement contracts for a period o f from one to five years, inkeepingwith the seriousness o f the offense. E. Processes and practices 84. Although the LACAP establishes relatively speedy requirements for the phase o f biddingand awarding the contract, the reality indicates that there is a great heterogeneity o f the processes and practices being used due to the diverse capacity o f the institutions, the amount and characteristics o f their procurements, the lack o f a regulation o f the law El Salvador CPAR 21 and the absence o f standardized documents. The exception are contracts financed by international institutions, which are excluded from the LACAP and follow the procedures and documentation agreed uponwith eachinstitution. Bidprocedures 85. Given the heterogeneity of processes and practices, and taking into account the predominance o f the MOP / FOVIAL in procurement matters (these entities execute approximately one third o fpublic investment), as well as the good quality and availability o ftheir data, the comments made inparagraphs 87 refer to this Ministry. 86. The MOP, which was reorganized in the year 2001, has became a model institution with regard to its organization and the practices it follows, including those related to procurement and contract management. The assessment o f their procurements inthe June 1999 to July 2003 period-and particularly inthe year 2002 -summedup in the charts below, confirms the good practice ofthe MOP and FOVIAL with regard to the use o f public bidding for the contracting o f works and open shopping for small-amount purchases: Construction. Construction represents approximately 93% o f the total cost o f procurement activities and this amount i s substantially contracted through public bids. As far as number is concerned, the market is distributed equally between local and foreign contracting firms, but foreign firms are awarded only 6% o f the contracts. The average amount o f the contracts awarded to local contractors i s US$1.8 million, while the average for foreign contracts i s in the range o f US$10 million. Consultancy (including supervision). The market is in the hands o f local consultants even though it i s open to foreigners. Two-thirds o f the amount contracted with consultants i s accomplished through public tender and the remaining third i s accomplished by an invitation to tender that i s sent to at least three firms. In the year 2002, the cost o f consultancy represented around 3% o f the amount contracted for construction. 0 Goods and services. This sector represents 4% o f the amount o f MOP procurements. Even though 98% o f the contracts i s awarded by means o f open shopping procedures the sum total thereof represents only 11% o f the total amount o f goods and services acquired; the individual amount o f these contracts i s in the range o f US$l,OOO. The remaining 89% o f the amount assigned to goods and services is contracted through a few public bids for a substantial amount of money. SUMMARYOFMOPAND FOVIALCONTRACTS(JUNE 99 -JULY 03) .I-"illl-" LOCAL FOREIGN TOTAL ~ - _LOCAL _ FOREIGN TOTAL "l_l__l~ l_ll_l_.lll_ll_ll_l__lll_l N % N % N % - I ~ $ % $ % $ % CONSTRUCTION 148 83 30 17 178 29 262.9 46 303.7 54 566.6 93 SUPERVISION 88 99 1 1 89 15 19.6 98 0.4 2 20.0 3 GOODS/SERVICES 335 99 2 1 337 56 24.3 98 0.6 2 24.9 4 TOTAL 571 94 33 6 604 100 306.8 50 304.7 50 611.5 100 SUMMARY OF MOPAND FOVIAL CONTRACTS(2002) CONSTRUCTION CONSULTANCY GOODS AND SERVICES N $ % N $ YO N $ YO PUBLIC BID 55 170.0 88 19 3.4 64 26 11.6 89 INVITATION 8 22.1 12 15 1.8 34 2 OPEN SHOPPING 2 14 0.1 2 1445 1.5 11 TOTAL 65 192.1 100 48 5.3 100 1473 13.1 100 87. In many UACIs the estimated average time for processing from the time of the request for goods or services untilthe signing o f a contract i s approximately six months, which is considered excessive if one wants to provide the institution with the requested goods or services in a timely manner. The MOP however, has managed to reduce this period to approximately three months (para. 94). It i s advisable to conduct a detailed investigation o f the time it takes to complete bidding processes in the different institutions and to recommend specific improvements inthis efficiency indicator. Announcingthe invitation to bid 88. It is essential to properly inform the public about bidding opportunities. The LACAP requires that all public institutions prepare an annual program for the procurement o f goods, works and services, and that they publish the invitation to bid in local newspapers, detailing the scope of the bid, the location where the interested parties can obtain the specifications and the timeframe given to' receive and open the proposals. The LACAP regulation should be more specific with regard to the amount o f time required to prepare and deliver the proposal, since this has to take into account the type and importance of the bid. For example, for international bids the time givento prepare the proposal is usually at least six weeks. Likewise, the regulation also should specify the minimum number o f newspapers to be used and the frequency with which the invitation to bid should appear. However, as the use o f electronic means to satisfy this requirement grows, the use o f newspapers will be increasingly less relevant. The MOP i s makinguse o f its electronic portalto announce biddingopportunities. Registry and qualificationof bidders 89. The LACAP mentions that one o f the responsibilities o f the W A C i s the establishment o f a National Registry o f Suppliers and Contractors, which should include information on the degree o f compliance o f suppliers and contractors o f the State. In a similar fashion, the LACAP also requires that the UACIs set up a database that basically would contain the same information requiredby the National Registry. Nevertheless, the law establishes that it i s not indispensable for the bidder to be registered in order to El Salvador CPAR 29 participate in a bid. The requirements for the registration o f suppliers and contractors should be spelledout indetail inthe regulation o fthe law. It is recommended that the regulation should specify that the information that will be maintained in the registry will be used solely to categorize providers according to technical and financial capacity (this information should be updated and presented every time the provider participates ina bid) and experience ingeneral, andthat the information in the registry will not be used for qualification or pre-qualification o f companies company for any particular bid or invitation to tender. The regulation has to clearly specify if the registry will be used to confirm the companies' compliance with legal and fiscal requirements, and if such information will be used to qualify or disqualify a supplier or contractor, in keeping with article 25 o f the LACAP. The regulation also should clearly state that registration should not be used as a substitute for public announcements and invitations whenever competition i s required. With regard to bids for civil works, depending on the quality o f the registry, a bid announcement could indicate that a company has to be registered under a specific category in order to be able to participate. The national registry system should be designed in such a way that it i s open to any provider or contractor and should allow registration and update o f registry data by mail or by Internet, when allowed by the circumstances. Following good practice methods, the LACAP also establishes the pre-qualification o f bidders as a requirement for participation inbids for complex or large-scale works or goods. Bid evaluation and contract award 90. Paragraphs 25 and 39 refer to the bid evaluation process from a legal standpoint. As for evaluation criteria, the law is flexible and requires only that the criteria be established inthe bid specifications, which inmany cases results inthe use o f ambiguous and not very objective criteria. Also, the LACAP states that the contract should be awarded to `the proposal that technically and economically is considered the best qualified', which also is ambiguous. These matters should be dealt with inthe regulation, in such a way that evaluation of the bidder's qualifications is made independently from the evaluation o f his bid, and the contract is awarded to a qualified bidder who has submittedthe offer that is evaluated as the lowest bid. Petition for review 91. The petition for review referred to in articles 76 and 77 o f the law has to be resolved by the same official who issued the resolution awarding the contract, which creates a conflict o f interest for the official involved. Nevertheless, this official has to appoint a high-level commission to analyze the petition and make a recommendation. In practice, the number o f petitions for review submitted by bidders i s very small. In the MOP, for example, the number o f bids inwhich petitions for review have been submitted represent less than 1%o f the total bids conducted duringthe past four years. Eventhough the possibility of presenting additional petitions to the Supreme Court of Justice already exists, it would be a good practice - in order to speed up resolution o f claims - to include El Salvador CPAR 30 another independent administrative instance with the authority to resolve complaints submitted by the bidders. Use of electronic means 92. The Government o f El Salvador has taken the initiative o f establishing an electronic procurement system, using information and communications technology (basically the Internet) to provide information to suppliers and the public in general on matters related to public procurement. This i s largely in line with the multilateral development organizations' definition o f electronic procurement. The electronic procurement system will be part o f a broader strategy on electronic government launched by the Technical Secretariat of the Presidency during an international seminar on electronic government held in San Salvador on May 20 and 21, 2004, with participation o f the IDB and the WB. Until an institutional framework i s established for implementation o f the electronic government system, the Technical Secretariat will be responsible for implementation o f the first phase. Within the framework o f the electronic government strategy, all Government entities should develop e-government applications based on the guidelines and provisions established in the Government strategy paper. Implementation o f the e-government strategy will require a strong leadership to carry out the e-government reform program. The Government will have to give some programs priority over others to maximize the use o f the limited financial resources, and will need to prepare a detailed action plan for the short, medium and long term in order to implement the selected priority programs. Implementation will be carried out by all participating public agencies and will be coordinated by an inter-institutional entity at the highestlevel o f government. 93. As part of this e-government strategy, the UNAC and the Technical Secretariat of the Presidency, with the assistance o f an international consultant, have started development o f an electronic procurement system known as "Comprasal". This system is expected to be developed in three different modules, implemented in three different stages, and integrated to the administrative and financial system, SAFI. The first stage involves the development o f an information module to provide information on: (i) legal requirements to participate in bids and purchases; (ii)announcements regarding business opportunities with the public sector; (iii) specific announcements regarding bids and purchases; and (iv) results o f the bidding process and the awarding o f contracts. The Government hopes to officially launch this information module in June or July o f this year and, as a pilot program, implementation will begin with central government and autonomous agencies to later expand to the rest o f public agencies. The second and third stages o f Comprasal involve electronic purchases (low cost and high volume contracts) and an electronic bidding system (high cost and low volume contracts) respectively for the procurement o f goods, works, consultancy services and other services. From the viewpoint o f the banks, this approach appears reasonable and i s in line with the country's needs and capacities. A detailed implementation schedule for the short, mediumand long term will be discussed thoroughly and will be reflected in the action plan to be agreed upon with the Government. Particular attention should be given to the sequence for implementation o f the second and third stages. Technical assistance and purchase o f El Salvador CPAR 31 electronic equipment for the Government's electronic procurement system will be financed by means o f the projects to modernize the state financed by the two banks, as well as the IDFgrant from the WB. F. Performance of ContractManazement 94. Similar to the processes and practices of the bidding stage, the performance of contract management largely depends on the management capacity o f the contracting institution and consequently the practices differ quite a lot in terms o f quality and professionalism. In the case o f the MOP, in parallel with implementation o f structural reforms, important changes related to procurement and contracting have been made to the management o f investmentprojects. According to the MOP, these changes include: A clear definition of roles and responsibilities for the various stakeholders in order to ensure the quality o f the works, demandingfrom construction companies maintenance o f their own quality control program; supervising companies must check compliance with the standards that the construction company agreed to meet inthe contract; and the MOP must provide oversight o f the responsibilities assumed by the contractor and supervisingcompany by means o f quality checks. Givingproject managers enough authority for the makingof decisions associated with the control and follow-up ofprojects. Inclusion o f right-of-way management (appraisals, negotiations for land and indemnification) as part o f the activities to be handledby the contractor. One o f the main difficulties in the construction o f works i s the clearing o f an easement strip, causing frequent extensions of project execution time, an increase in costs due to design modifications, and claims from the contractors. When this task is assigned to the contractor, the contractor organizes its work schedule according to its own planto secure right-of-way clearance. Review and customization o f specifications for bids, tenders, and contracts. A system has been set up for many procedures and a large amount o f documents have been standardized. Implementation o f the "turnkey" contracting system, which centralizes in the contractor responsibility for design and construction o f the works, thereby reducing the time requiredfor biddingand contracting. Other significant achievements associated with MOP management are: 0 Reduction o f works cost overruns by avoiding frequent change orders due to inadequate design, delays due to negotiation, and payment o f rights o f way. Substantial reduction o f supervision costs in relation to construction costs, from more than20% to less than4%. Reductioninthe contracting process from approximately 10 months to some three months. 0 Timely payment to contractors. Average time for payment i s 15 days. El Salvador CPAR 32 "Turnkey" contracts 95. In El Salvador, a "turnkey" contract is an obligation whereby a contractor is solely and directly responsible to the contracting party for the quality, time and cost o f the design and execution o f all o f the components o f the project. It is a contracting method through which the contractor provides all engineering, equipment and construction services. Under this type o f contract changes and price adjustment orders are not allowed, and the deadline for execution cannot be modified except in cases o f force majeure. The quality o f the works i s entirely under the responsibility o f the contractor, through its own control system, and supervision o f the contract by the customer, either through its own means or through consulting services, is limited. 96. The leading characteristics o f the turnkey system as it is usually handled by the MOP can be summed up as follows: During the biddingphase: The MOP delivers an advanced design concept 0 No pre-qualification is made prior to the submission o f tenders, even though this depends onthe source o f financing The deadline for preparationo ftenders usually is 30 days 0 The tender is delivered in a single envelope containing bidder information, the technical proposal and the economic proposal Evaluation o f tenders comprises three aspects: (i) assessment o f the bidder's legal and financial background; (ii) evaluation o f the bidder's technical proposal; and (iii)recommendationtoawardthecontract a Aspects (i) (ii) assessed according to the score system outlined inthe bid and are specifications, and award i s made to the company that submits the lowest bid and obtains a score equal to or above the minimumindicated inthe bidspecifications Duringimplementationo fthe contract: Emphasis on self-styled quality control o f works by the contractor 0 Continuous presence o fthe supervisor at the work site 0 Payments based on work measurements and in accordance with table o f work quantities for major works items. Payments made within a 15-day period following approval Large risks: 0 Contractor i s totally responsible for project design, even if the design concept deliveredby the client is an advanced design 0 The contractor assumesthe risks posed by subsoil conditions 0 The contractor is responsible for managing the acquisition o f and compensation for lands where the works will be executed, as well as for permits for the relocation o f public utility services El Salvador CPAR 33 97. Duringthe 2001-2003 period, 36 works were contracted by the MOP under the turnkey system, for a total o f $196.3 million. Of these works, 28 already have been completed and according to MOP data, the experience appears to be positive. 0 N o contract has exceeded the original contracted amount 0 Only four contracts have exceeded the timeframe that was originally contracted 0 In 22 of the 36 bids, between 2 and 4 proposals were submitted per bid, and in another 11bids more than five proposals were submitted 0 The tender withthe lowest price was awarded the contract in60% o fthe bids 0 Most o f the contracts were for relatively simple works (over-coating, reconditioning, etc.) that are considered low-risk contracts, while 70% o f the contracts had an individual value under $5 million 98. The turnkey contracts conceived by the MOP have been successful because they have corrected some o f the problems resulting from the traditional contracting o f works, such as delays in execution, excessive costs overrun and a lack o f discipline by the contracting parties and contractors during execution o f the contract. Even though the MOP i s passing on to the contractor risks that are usually considered high, it seems that contractors have responded positively as evidenced by the number o f tenders submitted. Furthermore, the fact that no major claims have been filed suggests that they are satisfied with the profit being obtained from the contracts. Now, the question is whether the MOP i s obtaining an adequate return on investment, and here it must be remembered that an inappropriate risk retention/ distribution strategy mightpose a threat to said return. Inthis sense, any comparison between the turnkey systemand the traditional contracting method mustbe made under certain equal terms (for example, timelypayments, a lack of change orders during construction, etc.) 99. Another comment that was frequently made during the interviews for CPAR preparation i s related to the evaluation o f bids, since bids are not identical. Although the MOP'S design concept i s an advanced one and reduces the heterogeneous nature o f tenders, it also significantly reduces the bidder's ability for innovation as far as the offering o f different solutions i s concerned, and this i s precisely one o f the goals o f contracts that include the design and construction o f works. Another concern mentioned has to do with the use o f a points system for bid evaluation. Even though the aspects to be evaluated have to do with good practice, a points system has a degree o f subjectivity that -eventhoughitmightnotbewellregardedfromthe viewpoint oftransparency-with good use can reduce the risk o f awarding a contract to a bidder that i s not qualified to execute it. A reassessmento fthe systemshould certainly consider the pre-qualification o f bidders before inviting them to tender, and this reassessmentshould be carried out intwo phases. Inthe first stage, bidders are invited to submit technical proposals with no prices, based on a schematic design or the operating specifications, subject to clarification and technical/commercial adjustments. Inthe second stage, an invitation to submit a technical proposal with prices, based on modified bid specifications. This procedure requires more time, but it is more transparent and objective than the existing system. El Salvador CPAR 34 100. The strategy for risk allocation in a project defines the type o f contract for its implementation and i s determined by contracting-entity policies and by project requirements. However, the entity mustbear inmindthat its risk distribution strategy has important implications with regard to execution and the cost o f projects. Construction risks such as subsoil conditions, the availability o f land to carry out the works, non- compliance by contractor, costs overrun and delays are generally considered as major risksand their distribution and management must be carefully evaluated for eachproject. Therefore, a lot o f care should be exercised when trying to transfer the MOP'Sexperience to other agencies that might not have as much experience in the contracting o f complex works. For example, turnkey contracting can be usedfor construction o f simple buildings (such as office and apartment buildings, etc.), but it might not be appropriate for building restoration or construction o f hospitals and facilities with complex functions, because the contracting agency cannot exert the required control during construction and the contractor's aspirations with regard to design innovation and excellence inevitably will be affected by such considerations as how to save time and money. If integration o f design, construction, and provision and installation o f equipment is the desiredobjective, with responsibility centralized in the contractor, but with payments made according to quantitycharts as well as a fair and equitable distribution o frisks amongthe parties to the contract, then selection o f a more traditional type o f contract for "Design and Construction", including the provision and installation o f equipment, i s recommended. 101. Although "turnkey" contracts have been successful to a certain degree, it i s important to recall that this type o f contract i s not a panacea and that most o f their achievements also can be attained with traditional contracts; for example, by means o f strict discipline by the contracting entity regarding non-introduction o f changes and additional works during contract performance. Furthermore, turnkey contracts impose on bidders the high costs involved in preparing proposals, since the designs must be complete enough to allow setting the price with a high degree o f accuracy and the contractor mightbe paying the cost o f a risk that might not materialize (for example, due to unforeseen conditions in the subsoil). If the contractor i s responsible for most o f the risks, the contracting entity obviously has to give it enough time and opportunity to obtain and take into account relevant information before signing a contract for a fixed large sum. The contracting party also should understand that the contractor has to include the risks taken in its costs, thereby increasing the price of the works. International experience shows that turnkey contracts that assign most o f the risks to the contractor are not the best alternative, if: 0 Bidders do not have enough time or information to study and verify the client's requirements, or to complete the designs and evaluate risks and costs; 0 The construction includes underground work or work in areas in which the bidders cannot carry out investigations; 0 The contracting party intends to introduce changes during execution of the contract or to control the work that i s the contractor's responsibility. Files and documentation El Salvador CPAR 35 102. The quality of the files varies according to the institution. Entities with more experience and a larger volume o f contracts maintain better organized files than entities with less experience. The UACIs are responsible for keeping the original documents pertainingto bid documents and contracts, but many o f them still maintain the documents scattered all.over the institution's various administrative units. For example, the AFI Law requires that the UFIs maintain the original support documents for their operation. Executing units maintain their files separately. In this regard they do not maintain a unified filing system, and instead their files are maintained by the various units. As an example, the Institutional Financial Units (UFI) and the Accounting and Treasury Units maintain ina separate manner the finance and accounting documents to process payments covering estimates or payment commitments with suppliers and contractors. 103. Audit results frequently show that files are not complete and that folders do not contain all the documents associated with each phase o f the bidprocess, from beginning to end. In this sense, auditors' comments indicate that when trying to link financial controls on payments to the accounting records, and later to locate the corresponding documentary evidence, it i s impossible to identify them because there i s no coding to linkthe various control systems to the documents infile. Likewise, a common complaint from auditors i s that the records do not include the details required to identify the goods purchased andthe services contracted, or the use o f said goods and services, or the costs o f investmentor progress o fthe works. The files issue must be addressed by the UACIs. G. Environmental Issues 104. The protection, preservation and improvement o f natural resources and the environment are subject to special regulation under Decree 233, in keeping with the country's Constitution. As part o f the policy set by said regulation, public management o f the environment must be global; inter-sectorial; shared by the various State institutions, including the municipalities; and supported by civil society. Moreover, efficiency criteria must be appliedto environmental management, allowing for attainment of environmental benefits at a lower cost and in the briefest possible timeframe, reconciling the need to protect the environment with economic development. 105. The law establishes the National Environmental Management System, SINIMA, made up o f the Environment and Natural Resources Ministry (MAW), acting as coordinator, the environmental units at each Ministry, and the autonomous and municipal institutions. SINAMA's objective i s to establish and maintain the principles, standards, program, direction and coordination o f the State environmental management at public institutions. 106. The environmental units are specialized structures tasked with the supervision, coordination and follow-up o f policies, plans, programs, projects and environmental actions within the institutions, for the purpose o f ensuring compliance with environmental norms and the necessary inter-institutional coordination. El Salvador CPAR 36 107. Public administration policies, plans and programs must be evaluated for their environmental impact - choosing the option with the least negative impact - as well as for consistency with the National Policy for Managing the Environment. Therefore, each institution or entity has to perform its own environmental assessments. Starting with the pre-investment phase, every activity, work or project i s subjected to an assessmentaimed at identifying negative environmental impacts; quantifying any such impact; and making recommendations aimed at ensuring protection o fthe environment. 108. An environmental permit must be obtained prior to beginning or placing into operation any activity, work or project. These permits are issued by the Ministry o f the Environment, following approval o f an environmental impact study that has a maximum timeframeof 60 working days, including a public consultation o fthe citizens. According to the environmental permit, the party responsible for the activity, work or project is compelled to carry out all prevention, mitigation or compensation actions indicated inthe environmental management program, which i s part of the impact study. The permit will be valid for the duration ofthe project. 109. To ensure control and follow-up of the environmental assessment and compliance with the terms of the permits for works and projects, the MARN performs regular and random environmental assessment audits. Aimed at ensuring compliance, the party responsible for the works or project must provide a bond equal to the total costs o f the physical works or the investment required. Such a bond must be maintained until the works or investments have been carried out or made as previously established in the environmental management and improvement plans. The bond required i s usually for 100% o f the contract value and seems to duplicate the obligations guaranteed under the policy guaranteeing fulfillment o f the contract. This requirement must be reviewed. 110. The provisions mentioned inthe preceding paragraphs should be complemented with clear guidelines on the environmentalconsiderations that mustbe taken into account duringprocurement processes, andwhich should: Take into consideration the environmental issue from the beginningofthe procurement process, which i s when, needs and specifications are definedand whenrecommendations can be more successful. Insist on careful planning o f the procurement process. Recommendthe use o f functional specifications where appropriate. Ensure participation o fprocurement specialists, environmental experts and users inthe relevantparts o fthe procurement process. Motivate contractors, vendors and consultants to submit innovative solutions. I1 PRIVATE SECTORPERFORMANCE H.Commercialpractices El Salvador CPAR 31 111. ' El Salvador has a small private sector dominated by firms that are well- established in the market. The country has several well-organized business associations, which, generally speaking, maintain good relations and cooperate with the Government. The main associations are: the Chamber o f Commerce and Industry, the Salvadorian Construction Chamber (CASALCO), and the National Association o f Private Enterprise. Some o f these associations are related to one another, represent similar interests and even share various members. In addition, the Salvadorian Association o f Engineers and Architects i s a professional association, founded in 1929, which watches out for the development and safety o f all its members. 112. With regard to business practices within the private sector, there are no regulations that govern procurement and contracts, and all commercial transactions are ruled by civil and commercial laws that are based on traditional civil law. As a general rule, the enterprises have no written regulations to govern their purchases and contracts, but in practice several o f them maintain registries of qualified vendors and of prices; perform market studies; and usually require several quotations to make a price comparison before a purchase i s made. In some cases, the larger companies carry out public bids inorder to choose their providers. 113. With regard to the private sector's business practices with the State, a survey carried out inApril 2002 by the Chamber o f Commerce and Industries - which i s mainly made up o f providers o f goods - showed that 81% o f its members claim to have submitted offers to the State on at least one occasion, but only 63% believe they are familiar with the new regulatory framework for public sector procurement and contracts. Inthis sense, 83% o fthe membership expressed an interest inreceiving advice or training on the subject. The Chamber o f Commerce and Industries has signed an agreement with the Technical Secretariat of the Presidency aimed at implementing a training and technical assistance service on the topic o f State procurement and contracts for the members o f the Chamber. The aforementioned survey was conducted as a result of this agreement. Another objective o f the agreement i s to promote transparency in processes having to do with public administration, and to this effect a mechanism was set up for permanent consultationwith the Government. 114. Inquiries made o f some o f the members o f the Chamber o f Commerce and Industries concerning the reasons why they had not to responded to government calls for bids showed that: 65% answered that the procedures were cumbersome; 42% answered that the costs o f doing business with the Government were high; 39% mentioned collection problems; and only 6% mentioned a lack o f technical or financial resources. Likewise, the Chamber found that the major deficiencies o f submitting tenders to the State occur during the following phases: bid evaluation, awarding o f contracts, appeals, requests for guarantees, and delay in payment. Corruption problems or a lack o f flexibility by entities when enforcing the law also were cited, but to a much lesser extent. The majority o f participants in the survey said that the main government entities they work with are the Salvadorian Social Security Institute and the Ministryo f Public Health and SocialAction. El Salvador CPAR 38 I. TheConstructionIndustrv 115. The State is the main user o f services associated with civil works construction in El Salvador, with expenditures o f approximately $500 million per year, while private sector construction i s aimed mainly at commercial facilities and housing, with expenditures o f some $200 million per year. The annual billing o f $700 million for this industryrepresents 5% o fthe GDP. 116. The Government made an effort to increase investment in order to rebuild the infrastructure damaged by earthquakes in 2001, causing investment to double and reach US$600 million. A large portion o f this investment was used for the construction o f roads, hospitals, schools, housing, potable water infrastructure and electrical energy, etc. The construction sector generates at least 27,000 direct jobs (close to 5% of total employment). A very rudimentaryestimate o f the sector's productivity shows an annual yield o f approximately $26,000 per worker, which is relatively highfor yield achieved in Central America, but low if compared with those attained in more industrialized countries. 117. All public investment is carried out through contracting with the private sector. Both local and foreign companies take part in the bidding processes. In general, foreign companies participate to a greater extent inthe larger projects, and carry out 20% o f the total amount o f public investment.National companies are represented by CASALCO, which groups together approximately 150 companies associated with the construction sector, including 60 contractors for public works, 46 contractors for housing projects, and approximately 44 providers o f goods and equipment. Inaddition, there i s a large amount o f individual contractors who occasionally participate inthe market but are not affiliated with CASALCO. The annual billing capacity of local construction companies is estimated at some $400 million. National companies are relatively small, withjust a few firms carrying out large contracts and a large amount o f small companies executing the remainder. In many cases the small companies participate in cooperatives, such as the case o f services rendered to the Road Fund by some 33 micro-enterprises created by former MOP employees. 118. The following are the main problems and requirements from the construction sector: -- Local contracting companies fear foreign competition guaranteed by the LACAP and by the Free Trade Treaties (TLC) presently under negotiation. Local companies would like to see homologation o f the laws o f the other TLC countries so as to foster reciprocity, which would allow Salvadoran contractors to compete in other countries' bidswith the same conditions underwhich foreign companies compete inEl Salvador. -- Fluctuations inpublic investment do not allow sound planning o f the companies' costs, which has a negative impact on their development. Itmust be noted that during the 2001-2003 period the increased investment did not provide muchhelp to local contractors because many o f the housing construction works were handled by NGOs and mutual El Salvador CPAR 39 assistance programs, and the large reconstruction contracts were carried out by large companies, some o fthem foreign companies. -- Inmany Government agencies there is little experience and training to carry out bidding processes and manage contracts due, among other reasons, to a highturnover o f personnel. -- The bidding documents and contracts are designed for larger and more complex works and not for simple works to be performed by small and medium-sized companies, which impacts the quality and speed o f processes and works, giving rise to all sorts o f conflicts. -- There are too many requirements to participate in a bidding process, which increases the costs for preparinga bid. J. Professional services Consulting practices 119. Considering the amount o f foreign funds in Salvadoran investment, inthe form o f loans or donations, there i s a demand for consulting services and many o f these services are provided by local firms in association with foreign companies. A large proportion o f these consulting services i s focused on the design and supervision o f works construction, particularly roads, hospitals, schools, housing, and potable water infrastructure. Recently, turnkey contracts that assign the responsibility for design to the works contractor also have affected the consulting practice. For their part, consultants have reacted ina not very effective manner by using protectionist arguments that garnered scant attention in the market. 120. The consulting industry is grouped under the Consultants Association of El Salvador (ACODES). which brings together some 27 firms - 18 companies and nine individual consultants - that have a billing capacity o f approximately $25 million per year. 121. One o f the major problems faced by consulting engineering i s the practice of selecting consultants based on cost, a practice that continues to spread throughout Latin America. Even though the guidelines from international institutions and the law itself establish that technical aspects should be the prime factor when selecting consultants, in practice the importance given to these factors i s in appearance only and price outweighs all other considerations. For example, in many cases the tender is required to be submitted ina single envelope containing both the technical and economic offer and this envelope i s opened inpublic; this creates a prejudice inthe evaluators and facilitates the accommodation o f results. The entire approach deserves review. Check consistency with Appendix A. Guarantee and Insurance Services El Salvador CPAR 40 122. The insurance industry in El Salvador i s made up o f 18 insurance companies, which are authorized by the Superintendent o f the Financial System to operate as insurance and bonding companies. The surety insurance market (bonds) i s somewhat reduced and represents 3% o f total premium. When the time comes to obtain bonds to participate inbids and carry out contracts, contractors usually prefer insurance companies because their financial capability i s not affected as much as when they obtain the bonds from banks. However, bonds are becoming more expensive because international reinsurance companies are more cautious now and have either restricted their geographic area o f action or have withdrawn from the market. There are only five international reinsurers for Central America. 123. The main problems encountered by insurers have to do with limited knowledge regarding insurance and bonds. This generates confusion regarding terminology, a duplication of bonds, and abuse inexecuting said bonds. I11 PERFORMANCEOF IDB-ASSISTEDPROJECTS 124. The Bank's report on El Salvador states that this portfolio is relatively recent. The oldest project, approved in 1992 (73l/OC-ES), was first reformulated in 1998 to address emergency conditions caused by Hurricane Mitch, and again later on, in2001,to support the national government in repairing the damage caused by earthquakes to the road infrastructure. 125. A large part of the El Salvador portfolio, 18 o f the 25 projects, was approved by the Bank duringthe 1997-2002 period and represents 91.2% of the portfolio's available balances for the transportation and energy sectors, while the more recent projects have to do with the housing sector, local development, civil society, and the financing o f loans for small andmedium-sized enterprises. Furthermore, inthe year 2001 the largest number o f loans existing in the portfolio was approved for a total o f US$296.8 million, which i s equivalent to 22.8% o f the total loan portfolio. 126. Execution o f the portfolio does not show any major problem o f inefficiency due, inpart, to the Bank's continual efforts to teach executing agencies how to carry out the processes involved in the operating framework for loans. Achievement o f development objectives for the Bank's 25 portfolio projects inEl Salvador has been classified between probable (21) and highly probable (4). Consequently, there are no operations with problems. There are two operations (1092/OC-ESY Health Sector Modernization and 1084/0C-ES, Support o f Education Technologies) with an unsatisfactory performance rating, while the rest attained a satisfactory performance rating with regard to their components. There are eight (8) operations that have been classified under alert status in accordance with the risk indicators o f the Bank's Project Alert Identification System (PAIS), as follows: (i) System Reform Program, Loans 919IOC-ES and 920/0C- Justice ES; (ii) Program to Support Modernization o f the Ministry o f Public Health and Social Assistance, Loan 1092/OC-ES; (iii)Education Technologies Support Program, Loan 1084/OC-ES; (iv) Fiscal Administration Modernization Program, Loans 94l/OC-ES and 980/SF-ES; (v) Road Administration Program 11, Loans 839 and 840/OC-ES; (vi) Critical El Salvador CPAR 41 Areas Decontamination Program, 1209/0C-ES; (vii) El Salvador Environmental Program, 886/OC-ES; and (viii) the Program for Modernization o f the Legislative Assembly, 1203/OC-ES. 127. During the 2001 period, 473 bidding processes were reported in the PRISM System (Procurement Report Information System), for the procurement o f goods and the contracting o f works and consultancy services, with an average o f 49 processes per month. Duringthe same period o f the previous year (2000), 364 biddingprocesses were reported. During2001 there was a higher incidence of works contracts, many o f them for minor amounts, due to damage caused by the two earthquakes that affected the country. Works contracted for higher amounts, which require international publicity, were performed inkeeping with IDB emergency procedures. 128. In the period between June 30, 2002 and July 31, 2003, 595 procurement processes were reported for the procurement o f goods and the contracting o f works and consultancy services, with a monthly average o f 50 processes. 129. The procurement o f goods and contracting o f works and consultancy services continue to be a priority and an important issue for the ExecutingAgencies and the Bank. However, portfolio efficiency i s affected occasionally, due mainly to the lack o f experience o f many officials in some executing units. Nevertheless, the situation has improved as a result o f the enforcement o f the Law on Public Administration Procurement and Contracting in all public sector bidding processes and the continual effort to train officials from the executing units o f the Bank's projects. Enforcement o f the Law has diminished the discretionary use of criteria and has improved the management o f government procurement activities. 130. For its part, COF/CES has contributed with various specific seminars on procurement topics, funded by the C and D Countries Plan, as well as training imparted during the workshops held to launch the new operations. Inaddition, the Representation has a procurement expert to support the executing agencies and specialists with regardto preparation of documents, training, communication with the Procurement Office, prevention o fproblems and provisiono f solutions. 131. The COF/CES project portfolio has two loans, 11OO/OC-ES, Education Infrastructure Program, Local Development Program Iand 11, respectively, with the option o f undergoing an ex-post sample review o f the procurement processes. However, inkeepingwith agreements reachedwith the borrowers, at the present time oversight of loan 11OO/OC-ES i s being conducted ex-ante. 132. Inloans 1067 and 1352/OC-ESYthe limit for ex-post supervision was loweredfor bids under US $100,000. This new limit was set in lieu of the original amounts of US$250,000 for the procurement o f goods, US $1,500,000 for the contracting o f works and US$200,000 for the contracting of consultant services. This measure was agreed upon with the borrower until institutional capacity has improved and the Bank determines, along with the borrower, that ex-post supervision is advisable. It is expected El Salvador CPAR 42 that the training efforts promoted by the Bank and the improvements in procurement systems will help to increase the institutional capacity of borrowers so that an ex-post review can be made o f all operations inwhich such review i s possible. 133. The Institutional Units for Procurement and Contracting (UACIs), created thanks to the Law on Public Administration Procurement and Contracting, provide assistance to and coordinate all public sector bidding processes. The Government, together with the Bank, makes a continual effort to train the officials o f the units that are executing the projects fundedby the Bank. 134. The Salvadorian government authorities maintain an interest in developing a system to improve and ensure transparency, efficiency and savings in public sector procurement. IV PERFORMANCE OF WORLD BANK-ASSISTEDPROJECTS 135. The World Bank'soperations inEl Salvador began inthe year 1949 with a credit for the development o f a hydroelectric project on the Lempa River. From 1949 to date, the World Bank has approved 37 credits and loans totaling US$989 million. WB financing priorities in El Salvador have undergone a significant change during recent years, with the emphasis shifting from infrastructure projects toward social area projects, while the most important objective inall WB operations is reductionofpoverty. 136. Betweenthe years 2002 and 2005, the WB expects to disburse a total of US$270 million to support the Government inthe execution o f emergency projects inthe areas of health, judicial reform, community development, environmental services and land administration. The WB's current portfolio has a total commitment o f US$397 million in loans, including $142 million for the reconstruction o f damage caused by the earthquake and improvements to the health system, $146 million for education, $50 million for land administration, and two loans for technical assistanceto help modernize the public sector and improve the competitive ability of the private sector. This effort has been supplementedby the International Finance Corporation and the Multilateral Investment Guarantee Agency for the development and promotion o f investments by the private sector. 137. Procurement financed by WB loans i s made up mainly o f relatively small reconstruction and new civil works, consulting services and purchases o f relatively simple products. As shown under Appendix A, local contracting procedures are, in general, consistent with WB guidelines. In addition, the LACAP exempts contracts financed by international agencies from its jurisdiction. The agencies that execute WB- financed projects use standard documents for ICB andNCB. 138. To evaluate performance o f WB-assisted projects from the viewpoint o f public procurement and project management, all Implementation Completion Reports (ICRs since the 1990s) and all Project Status Reports (PSRs) for projects under execution were reviewed. There are no records in WB archives about country project performance review or country performance auditing. None o f the available reports provides a critical El Salvador CPAR 43 evaluation or specific analysis regarding public procurement, and in general terms they conclude that performance has been highly satisfactory. A careful analysis of those reports and o f the conversations held with officials from the project-executing agencies show that the difficulties and delays experienced during project implementation have resulted mainly from problems associated with the lack o f (i) counterpart resources at the beginning o f the project; (ii) planning o f all contract activities; and (iii) timely trained staff and an organization consistent with needs. The following are among the main problems encountered: a) Delays in approving WB loans by the National Assembly, which in some cases exceeded 20 months. Consequently, and due to the lack o f financial and material resources at the beginning o f project execution from both loan and counterpart funds, the project-executing units have beenpractically paralyzed in spite o f the fact that in certain cases they were preparedand ready to start. b) More attention should be given to, and a more detailed assessment should be made of, the execution capacity o f the executing agencies, including identification o f the humanandmaterialresources requiredfor project execution. c) Duringthe first year project implementationwas very slow due to the Borrower's lack o f knowledge about the Bank'snorms and guidelines pertaining to the procurement o f goods, works and services, including standard documents. This situation was compounded by the absence o f a project operations manual as a result of the late start, andby the lack o ftimely interventionby key personnel inthe preparationo fthe manual. d) In many cases the preparation of bidding documents for civil works has been hindered by the lack o f complete designs, drawings and cost estimates, a situation that could have beenavoided with the timely hiringo f specialized technical staff. e) The lack o f knowledge about and dissemination of the project's important actions, including loan and project evaluation documents by the main actors involved in the project. This situation was even more critical inthe case o f the social rehabilitation loanthat benefitedthe health and education sectors. f) The lack o f financial and accounting systems, as well as follow-ups and assessmentso fthe project, particularly duringthe first year o f execution, caused delays in disbursements and the preparationo f project progress reports. 139. There are no records inWB or IDBfiles about any cancellation o f grant funds due to violations by the borrower o f agreements signedwith the banks regarding contracts for goods, works, or services. ProcurementThresholds Institution ICB NCB 3 Q ICB NCB 3 4 WB > 1,500 * > 5,000 350-5,000 <350 >150 25-150 <25 IDB 12-1,500 ** >250 12-250 ** Countrv >loo 12-100 42 >loo 12-100 4 2 El Salvador CPAR 44 ICB = International Competitive Bidding; NCB =National Competitive Bidding; 3Q= Three Quotations Amounts are inthousands of U S dollars. * ** For transport and energy projects the maximum threshold is US$3.0 million IDBfollows locallegislation. Given the type o f projects financed by the Banks, the contract amounts for the provision o f works and goods are almost always below the thresholds established by the banks, and since the thresholds established by LACAP are lower than those o fthe banks, the LACAP does not represent an obstacle for the banks. For consultant services, the banks allow a short list with only local consultants when the amount o f the contract i s equal to or below US$200,000, and inpractice most o f the contracts have been awarded to local enterprises. In cases o f pre-qualification o f consultancy firms, the banks make sure that foreign companies are included on the short list (a minimum o f two in the case o f IDB). The analysis made in the following paragraphs concludes that in procurement and contracting the risk is inthe mediumrange, and for this reason the recommendation i s to maintainthe thresholds established by the banks. For medium risk countries, the WB establishes the threshold for the prior review o f contracts for works, goods, consultancy services provided by firms and consultancy services provided by individuals at US$ 5.0 million, US$ 500,000, US$ 300,000 and US$ 100,000 respectively. In the case o f the IDB. Given the characteristics and size of the contracts financed by the banks, it is recommended - at least for the short term - that in each case a prior review should be made o f the first two contracts for only one year or for each year during the entire life o f the project, dependingonthe capacity ofthe entity executing the project. V GENERALASSESSMENTOF RISKS 141. The risks inherent to the SIAC depend on the key objectives assigned to the system, to wit, maintaining the principles o f public probity, ensuring the efficiency o f procurement processes, and making sure that resources are used ina rational manner. The following table sums up the most important risks associated with achievement o f these objectives. RISKSINVOLVED INACHIEVEMENT OF SIAC OBJECTIVESAND OPTIONS TO MITIGATE THEM RISK PROBABILIT IMPACT MITIGATINGFACTORS Y Insufficiency inSIAC's High High Strong support from top management. authorities at SIAC and at the UNAC Inappropriate management High High Strengthening o fthe o f public resources with CCR's independence, regardto purpose, autonomy and impartiality efficiency and Strengthening o f internal El Salvador CPAR 45 ... effectiveness. control ingovernment agencies Approval o f LACAP regulation Independent and frequent assessments Interference from other L o w High Consolidation o f agencies inUNAC affairs mandate, organization and . internal management o f the UNACTechnical training o f UNAC personnel . Loss o f coherence inthe Medium High Consolidationo f UNAC implementation o f procurement policies and mandateDesign and regulations implementationo f simple . procurement systems at the municipalities Strengthening the UACIs . Humanresources' poor Medium High Specializationinpublic technical capability procurement Designand implementationo f a . procurement training program Inefficient purchase prices Medium High Optimumallocation of .. risks associated with each project No risk analysis is carried High High Preparation of risk out for implementation o f analysis for implementation electronic procurement o f electronic procurement Fraudby people involved Medium High Designand inelectronic commerce implementationo f an anti- corruption strategy 142. Considering the importance o f public sector procurement, the materialization o f certain risks - such as insufficiency in SIAC's management; the inappropriate management o f public resources; and the lack o f risk analysis for new activities such as e-procurement - can bear considerable consequences for society and represents significant obstacles to achieving probity and efficiency goals. 143. For contractors - be they for works, goods or services - the risks vary according to the contracting agency and the complexity and financing o f the procurement. Contracts financed by international banks and other development agencies generally entail less risks for the contractor that those financed by the Government, because often they are El Salvador CPAR 46 managed by special units supported by those banks and use standardized documents and procedures. However, both the World Bank and the IDB have focused their operations mainly in social areas where the executing agencies face difficulties with regard to planningtheir procurement and public works programs and in selecting the best strategy for contracting. In spite o f the fact that much o f the procurement in these areas do not represent high risks due to their relatively low dollar value and their simplicity, they do bear a high transaction cost considering the time that personnel from the contracting agencies andthe bankshave to devote to this activity. 144. One exception to what has just been mentioned are the MOP'S "turnkey" contracts, mainly financed by Banco Centroamericano, in which practically all risks are assigned to the works contractor, who bears a very highrisk. 145. Taking the foregoing considerations into account, one can say that El Salvador is at mediumrisk as far as procurement i s concerned. V I RECOMMENDEDACTION PLAN 146. This report confirms the efforts made by El Salvador inthe procurement area and the Government's willingness to improve the SIAC, as demonstrated by the following: a) the approval of, and the effort beingmade to implement the LACAP b) the creation o f the UNAC and the UACIs, whose main responsibility i s to implementthe SIAC c) the onset oftraining activities anddissemination ofthe Law d) the existence o f good practices insome UACIs 147. However, and in spite o f the implementation o f LACAP, a generalized and systematic procurement process has not yet been established in all agencies. If El Salvador wants to have a procurement system that meets its aspirations o f maintaining the principles o fpublic probity, ensuring the efficiency o f the processes, and making sure that its resources are used ina rational manner, it has to tackle the challenges inthe legal framework for procurement, in the public institutions related to the sector, and in the processes that are needed to implementthe SIAC. For this purpose, it is recommended to: confirm the objectives and scope o f the SIAC, obtain a commitment from higher authorities, and prepare a realistic plan for its implementation. The priority activities identified during the preparation o f this report to tackle the challenges inthe three areas that were mentioned, and which could serve as a basis for such a plan, are outlined inthe action plan proposed on the following pages. If adopted, the action plan should be coordinated and be consistent with the activities funded by the public sector modernization project financed by the World Bank and the IDF grant in order to ensure the efficient use o f resources. VI1 MONITORING AND EVALUATION El Salvador CPAR 41 148. The program to reform public procurement and contracting that beganin 1996has lacked a monitoring and evaluation tool that would allow it to systematically measure the degree o f progress achieved in the reform process. To facilitate this task, it i s recommendedthat performance indicators be identified and a monitoring and evaluation system be established in order to measure the degree o f progress o f the public procurement modernization program, as well as the level o f improvement or deterioration o f the contracting processes in terms of quality, efficiency and transparency. u d " " c ? - 3 3 . . . 3 3 3 8 W I, c) 0 E E9 U8 - 3 e 3 P ru 0 c9 e 0 W I= wi "mqm?m c tmx 4 El Salvador CPAR 51 VI11 UPDATE(May2006) 1. The field work for preparation o f this report concluded inNovember 2004. Since that time and until today, El Salvador has made rapid progress in modernizing its procurement system and has made changes that it is advisable to highlight and reinforce. The majority o f the initial recommendations o f the CPAR, which were made in September 2003, have been substantially addressed and the Government and the banks have agreed to make new recommendations to help maintain the dynamism of the modernization of the procurement system in El Salvador. For this reason this update i s beingmade and new recommendations are included. 2. First of all this report looks at the progress made with the recommendations suggested in the framework o f the CPAR in 2003. It then goes on to underscore the relative importance o f public procurement in El Salvador, and lastly it examines the current' situation in five large areas: political and institutional framework, legal and regulatory framework, operational and management framework, public procurement operations and market practices, and transparency and probity of the public contracting system. Each o f these areas includes a summary table at the onset, followed by a detailed presentation of content. Progress achievedwith recommendationmadeinOctober2003 3. The table on the following pages shows the recommendations made in September 30, 3003 and inthe last column it shows how much progress has been made to date. The columnwill show ifa recommendationwas fulfilled or ifit i s on its way to completion. c 3 Y c ! c? 3 3 . . 3 3 3 3 . c ! I 3 x x 3 3 3 c m 3 + m x x 3 3 3 3 3 m 3 4 m 2 8 % i 3 i I 3 i 4 vi a 8 3 ii v;3 The situation inM a v 2006 Relative Importance of Public Procurement 4. After the high levels o f public investment achieved between 2001 and 2003 during the reconstruction phase that followed the earthquakes, consolidated public procurement has become stabilized at close to US$SOO million, which i s equivalent to 4.7% o f the GDP. A potential savings o f 20% thanks to modernization o f the procurement system would have a tremendous positive impact, because it would be equivalent to the additional income obtained from the most recent fiscal reform, to 1/3 o f public spending on education, or to 2/3 o fpublic spending on health. Political-InstitutionalFramework Indicator Generalities of the current system Recommendationaccording to internationalreference Politicalpriority - The Government has granted special To continue the effective integration of priority to modernization o fthe the two institutions procurement system - There is coordinated and effective management by the STP and the MH, which are the key institutions as far as procurement reform i s concerned Management of the - The UNAC is effectively managing - To continue the institutional procurement system the system thanks to strong support strengthening o fthe UNAC - from the STP. The UNAC is responsible for - To continuethe strategy o f regulatory management and not for improving the qualifications o f operations, control, or the imposing U N A C personnel - o fpenalties The humanresources team at the - To strengthen the UACInetwork and - The UNAC is still institutionally UNAC i s becoming qualified give priority to the dissemination o f bestpractices and horizontal weak cooperation among the UACIs - The UACINetwork has begun operating successfully and can be strengthened further Scope and - The basic objectives are - To incorporate into the strategy the comprehensiveness transparency, savings, and efficiency goal o f promoting national of the goals - Mention already i s being made o f companies without detriment to the proposing the development objective competition. to MiPyMEs - To incorporate the goal o f strengthening interoperativeness with El Salvador CPAR . 57 Guidance and - the other Central American countries. I The drafting o fthe Strategic Planhas - To give priority to the Strategic Plan, planning capacity - There i s still scant informationfor begun. release it to the public, and have it - approved and operational in2007 To make progress inthe use o f indicators o fprocurement processes andresults. Building a - Consensus-building meetingsand - To convert consensus-building with consensus with the training activities have beenheld. the private sector into the axis o fthe private sector procurement modernizationpolicy andto create permanent mechanisms to achieve it 5. Politicalpriority. The Government has givena highpriority to the modernization, transparency, and efficiency o f public procurement. Political responsibility for the progress o f the procurement system lies at the highest level by means o f the Technical Secretariat o f the Presidency o f the Republic and the Chief o f the Council o f Ministers. Through them the entire cabinet is involved in the modernization o f the procurement system. The Technical Secretariat o f the Presidency, by means o f the Purchases and Contracting Component, has played a decisive role inprocurement modernizationand the approval, regulation, and dissemination o f the new legal framework. The Public Administration's Regulatory Unit for Procurement and Contracting (UNAC), which comes under the Finance Ministry, works hand in hand with the Purchases and Contracting Component o f the Technical Secretariat o f the Presidency and has strengthened its leadership over the past year thanks to the strategic management o f the DeputyFinance Minister, who has vast knowledge about the public procurement process. The Technical Secretariat o f the Presidency and the Finance Ministry are the key institutions to promote change in the procurement system throughout the entire public sector. Coordinated work between the two and their willingness to support UNAC has broadened the outlook o f modernizing public procurement in El Salvador and has made room for the progress that i s discussed further on. 6. Management of the Procurement System. The UNAC is the lead institution inthe procurement system. Its most important activities have been: disseminating the LACAP, promoting the development o f the COMPRASAL system, and providing advice to the network o f Institutional Units o f Procurement and Contracting (UACIs) that are responsible for public sector procurement. At the present time there are 381 UACIs (119 at the central level and 262 in a like number o f municipalities). All o f the UACIs are using the LACAP and thanks to the boost given by the UNAC many o f them have increased their contracting capacity and transparency, and horizontal cooperation mechanisms have been created among the more effective UACIs. The U N A C was wisely conceived as a regulatory unit to guide, promote and follow up, without any direct execution or control functions. More than half the personnel at the U N A C (12 technical level officials) received highlevel training recently and the chief o f the U N A C maintains El Salvador CPAR 58 ties with international networks o f public procurement experts. The Government has the purpose o f maintaining a stable, high level management at the W A C in order to facilitate institutional strengthening. The UNAC's capacity to make a difference i s high thanks to the resolute support of the Technical Secretariat of the Presidency and the Finance Ministry. Nevertheless, the UNAC i s still institutionally weak because its influence hinges more on said support - a situation that might change inthe future - than on its own organizational and political strength. Due to this it i s recommended to continue strengthening it as an institution and to continue training staff members. 7. Scope and comprehensiveness of the goals. The goals o f the procurement system in El Salvador are focused on transparency, savings and efficiency. It was recently decided to also contribute to development o f the MIPYMES, without detriment to the competition but creating conditions whereby the MIPYMES can put their comparative advantages to good use. Untilnow there are no plans to contribute to the strengthening o f national companies or to territorial development within the country, and no one has brought up the goal o f facilitating integration o f the Central American subregion by means o f the procurement system. Incorporation o f these new goals might help to strengthen business sector support for the procurement modernization effort, improve the contracting system at the municipalities, and spur on interactionwith the countries o f the subregion. 8. Capacity to plan and guide procurement processes. The STP has promoted the preparation o f a strategic plan for the general modernization o f the procurement process and development o f the e-GP. This plan includes a description o f the desired system and the phases and responsibilities requiredto attain it.At the same time and incoordination with the UNAC, the STP also began to gather relevant information on procurement, especially aspects such as method, amounts, prices, and timeframes, to be able to improve the UNAC's guidance and monitoring capabilities. One o f the main recommendations is to complete, disseminate, and adopt the strategic plan, which should include: A quantitative and qualitative diagnosis o f the current status o f the country's procurement system, including a general description o f the procurement system, the political and institutional framework, the legal framework, national business development, and connectivity. A baseline with the mainquantitative indicators. An easily disseminated description of the final result expected from development of the e-GP andthe basic characteristics of its operation. A basic construction planbyphasesto attainthe desired result. Identification o f participants inthe phases foreseen (different levels o f government, national and international suppliers, the community), their responsibilities and incentives inorder to ensure their participation. Identification o ftimeframes for the various phases. Identification o f costs. A mechanism to carry out ongoing follow-up ofthe progress made andto define any corrective action required. El Salvador CPAR 59 - A method for periodic review of the Strategic Plan and the introduction of adjustments. 9. Building a consensus with theprivate sector. Over the past few years, the STP and the UNAC have held discussions meetings on the topic of procurement with various private sector business associations as a part of consensus-building meetings and training seminars. These consensus-building processes have been positive but have to be strengthened further. The private sector has not mentioned a lack of trust in the UNAC. Modernization of public procurement will require strengthening the dialogue with the private sector and setting up a plan to shore up its capacity to participate in COMPRASAL. Legislative and Regulatory Framework Indicator Generalities of the current system Recommendationaccording to internationalreference Pertinence of the - The LACAP containsthe basic legalframework. elements of amodern procurement Compliance with law, complies with internationally national and acceptedrequirements,and favors international the developmentof e-GP requirements. - Its use is widespread - There is no conflict withthe TLC (RD-CAFTA) Regulations and - The LACAP has a regulationfor instancesfor implementation and has created the implementation instances requiredfor its implementation Norms, guide1ines, - There still are differences inthe - Focus efforts on drawing up and and tools to support methods of enforcing the law and disseminating standardizedprocedures. implementation of inprocurementprocedures the law - Standarddocuments have been prepared Standards - Marketstandards: UNSPSC has - Market standards: put into operation a - The single registry ofproviders is beenadopted. single registry ofproviders that is open, free o f charge, i s updatedon-line and i s - taking shape valid internationally Processingstandards:unificationof - Process standards:design andput into bidding documents and bid use standards for bidding documents, evaluation procedures has begun presentation of offers, evaluation of offers, andcontract methods - Systems standards:to create interoperability betweenthe registry of biddersandthe databases ofthe company registry and the fiscal data registry El Salvador CPAR 60 10. Pertinence of the legal pamework. The "Law on Public Administration Procurement and Contracting" -LACAP- approved in the year 2000, contains the basic elements required for a modern public procurement law; meets internationally-accepted requirements; and facilitates the development of e-GP. Thanks to the dissemination carried out by the U N A C with the support o f the STP, the law is widely known and i s considered o f great value by the contracting public entities as well as the potential suppliers. Use o f the LACAP is widespread because all public entities base their procurement on it. There are no exceptions to the law except for the reasons o f public emergency it provides for, which account for an insignificant percentage o f total contract amount. 11. Regulation. The LACAP already has the regulatory norms it needs for its implementation. 12. The LACAP and the TLC. In general the LACAP i s compatible with the "Dominican Republic and Central American Free Trade Agreement" (DR-CAFTA), signed on August 5, 2004 and ratified by the Salvadorian Legislative Assembly on December 17, 2004. There are specific differences between the two instruments on the following topics: thresholds, entities involved, use o f the open bid method, advertising, timeframes for the preparation o f offers, characteristics o f the technical specifications, exceptions, and petitions for review. With regard to these differences, Salvadorian law clearly establishes that the treaty will prevail (Article 144 o f the Constitution). Consequently, the Salvadorian authorities have clarified that the DR-CAFTA i s applicable in its entirety and that the LACAP i s applicable for matters that are not provided for inthe treaty, and that there i s no need for any amendments to be made. In keeping with the provisions o f the treaty, Article 25 o f the LACAP was amended to reinforce and generalize the restrictions on contracting. 13. Norms and guidelines for implementation. Even though the LACAP is the sole legal framework, varying procedures still are being used due to differing interpretations about how it should be implemented. The UNAC provides general training on the characteristics and scope o f the law. From now on it is going to have to direct its training toward specialized topics such as procedures and, above all, designing and implementing standards. The UNAC already has drafts o f sole contracting procedures by sector and type ofprocurement that have to be coordinated, revised, and placed into operation. 14. Standards. The STP and the UNAC, with the support o f certain UACIs, designed standards. Among the market standards, the UnitedNation's international classification system for products and services (UNSPSC) was adopted and ensures international interoperability. There i s an urgent need to place into operation a single registry o f providers, which has to be open, free of charge, updated continuously and internationally operable. The registry of providers has to have interoperability with the registry o f companies and the Finance Ministry databases, so as not to ask the providers for information that the State already has and to remain updated on a continual basis. Inorder to develop process standards, work i s already under way on` standardizing bidding El Salvador CPAR 61 documents, evaluation procedures, and formats for contracts. Making progress in this field is considered a top priority task in order to unify and obtain the most benefit from the methods o f implementing the LACAP and to maximize transparency and the efficiency o fthe processes. Operations and Management Framework Indicator Generalitiesof the current system Recommendationaccording to internationalreference Monitoring and - The UNAC has started to designthe - Complete andplace into operation a evaluating follow-up system and to set up the system o f indicatorsto follow up on procurement. baseline procurement activities Availability of - Set up the baseline inthe second half information for the o f 2006 monitoringprocess. - Create a mechanism for on-line monitoring and the capacity for ongoing production o fpublic information on the procurement - Create inthe UNAC the capacity to operation assess system performance Development of the COMPRASAL has begunto operate Include the municipalities in e-GP with the dissemination module, and COMPRASAL as soon as possible has had a highlevel o f impact and Strengthen the dissemination module acceptance. withthe capacity of generating COMPRASAL services are free and statistics on-line. can be easily accessed Finish developing inorder to place Some municipal entities still are not a into operationin2006 andthe first part o f COMPRASAL half o f 2007 the modules for bids; Several modules are currently being monitoring o f procurement; developed inorder to continue management o f guarantees; recording advancing with COMPRASAL o f disputes and controversies; and a helpdesk. Begin development o fthe payment portal andhelp desk modules Perform a diagnosis o f U A C I connectivitv El Salvador CPAR 62 - Conserve and expand the training strategy, with emphasis on standard procedures - Create university-level specialization - Define a standardized UACIprofile inpublic procurement. according to type and define job profiles as a complementary task procurement is beingdesigned. - Create an accreditation system for the - There is needfor a strategy to inform UACIs the citizens about the changes inthe procurement process Capacity of the - Uneven capacity. The largest purchasing entities deficiencies are inthe municipalities Capacity of the - The organized businesssector has - Strengthen the training ofproviders, providers considerable capacity for public with emphasis on MIPYMES sector contracts Integration with the -- - The MIPYMES have limitations The gap threatens to widen There are plans for the new - Guaranteeintegration between mblic finances COMPRASAL modules to operate in COMPRASAL and SAFIfrom the very origin o fthe COMPRASAL modules 15. Monitoring and evaluatingprocurement. Traditionally El Salvador has lacked an information system that would allow itto consolidate information on procurement insuch a way that it can track trends, identify weak areas, improve processes, and strengthen control. Aware o f these limitations, the UNAC recently began to design a system to follow up on public procurement processes. For starters, it requested from the UACIs information on their operations in2005, for the purpose o f setting up a baseline that will allow it to make a follow-up o f the entire system and assess the impact o f the modernization actions and the operation o f COMPRASAL. The baseline should be ready before the end o f 2006. In the future it will be necessary to generate the monitoring information on-line when the procurement and payment transactions are made. The monitoring system will be essential to propose quantitative goals in the procurement modernization process; create a mechanismto follow up on processes and results; and to be in a position to assess progress made and to answer for the work being done by the UNAC and the UACIs. The setting up o f this system has two key elements: the generation of information on-line and development o fperformance analysis capacity. 16. Development of the e-GP. The development o f COMPRASAL is progressing satisfactorily and COMPRASAL i s beginning to turn into the engine o f procurement modernization inEl Salvador. The Web procurement portal (www.comurasal.gob.sv) has been in operation since late 2005 and the dissemination module i s fully operational, which allows inclusion o f the entities' procurement plans and essential information regardingthe biddingandtender processes. The information covers the majority o fpublic El Salvador CPAR 63 entities under the executive, legislative and judicial branches, but the majority o f municipalities still are not included. Expansion o f the dissemination module to the entities that still have not been included i s a top priority in order to guarantee the completeness of the process from the outset. A design has been made o f an operational prototype of the interactive module for biddingprocesses and its construction is currently i s currently being contracted out. Also in the development phase are the modules for management by results; managing guarantees; recording disputes; and a help desk, which should undergo a trial phase toward the end o f 2006 so as to be operational in January 2007. Work i s scheduled to begin soon on the design and development o f five new modules, but the financing o f this effort has yet to be defined. It was a wise decision to finance the COMPRASAL operation with funds from the national budget, without any cost to providers or the purchasing entities, becausethis has facilitated its acceptance and expansion to a larger number of providers. The development o f COMPRASAL also demands making, in the short term, a diagnosis o f the technological infrastructure and connectivity o fthe UACIs. The development o f COMPRASAL has been accurately conceived as an overall process o f institutional change and adjustment o f public procurement practices, and technological development is considered as just another component. Inorder to handle this, the UNAC can rely on support from the Finance Ministry' Directorate o f Technology, which renders services on demand. The UNAC has decided to strengthen its information management capacity (generation o f indicators and development o f analysis capacity). 17 Personnel training. El Salvador has gradually been training a group o f persons who are now familiar with the national procurement law, but it still has only a few experts on the new world trends regardingpublic procurement and e-GP. The UNAC has a competent management team and i s training its human resources by means o f specialized consultancies, exchanges with experts and international contacts. In government entities specialization inthe procurement area traditionally has been low, but over the past year the UNAC, with STP support, launched a high-speed training effort and beganto set down the initial foundation for specialization. The U N A C offers a wide range of training courses free of charge for state procurement agencies, government officials, and organizations o f companies that sell to the State. Those who have participated in the training seminars believe that they are functional and useful. At present the UNAC i s beginning a training cycle with the new mayors who took office in May 2006. Training for public officials includes knowledgeof the LACAP andthe TLC and their regulations; methods to draw up the annual procurement plan; attending to petitions for review; mechanisms for the resolution o f disputes; and management o f the COMPRASAL dissemination module. There has been a lack o f a plan to inform the citizens en masse about the e-GP strategy. The W A C has had contact with several e-GP development experiences in Latin America, but still needs more systematic knowledge about the international experience in e-GP and a better exchange with the countries that are more advanced in this field. The recommendations made in the following paragraph are aimed at creating a critical mass El Salvador CPAR 64 o fpeople specialized ingovernment procurement and at reducing the impact o f personnel rotation on U A C Imanagement. 18 Capacity of the purchasing entities. Just like the 2004 CPAR reported, the capacity o f procurement entities i s uneven. Some o f them are high performance units with trained personnel as well as advanced institutionalcapacity. Others, however, have a low capacity level and are vulnerable to improvisation and external pressures. Personnel turnover at the UACIs i s very high.The STP and UNAC have decided to try to overcome this situation by taking two sets of actions: ongoing training and creation of the UACI network. The U A C I network, which includes mechanisms for horizontal exchange and the dissemination o f good practices, has allowed the strengthening of several procurement units with an intermediate level o f development, even though an impact has not yet been made on the more backward units. To help develop the capacity o f procurement entities and their human resources, the mission makes the following recommendations: strengthen training with an emphasis on standardized procedures; promote the establishment o f academic specialization ingovernment procurement, which could soon become a job requirement at the UACIs; define standardized U A C I profiles according to type and volume o f activities, along with job descriptions for each case; strengthen the monitoring o f procedures; reinforce the UACI network with the continuous dissemination o f good procurement practices and setting up a horizontal cooperation system betweenthe UACIs; and creation o f a U A C I accreditation systemthat will meet organizational and procedural standards. 19. Capacity of the providers. El Salvador's organized business sector has considerable capacity to attend to a large portion o f the public sector requirements for works, goods and services. To the contrary, the MIPYMES traditionally have experienced difficulties when trying to become providers to the state, and these difficulties have been worsened by barriers that the state itself has set up. With the development o f COMPRASAL this gap could grow even wider, and consequently training o f providers with emphasis on the smaller ones has to be given priority in order to convert them into effective bidders for government purchases. 20. Integration between the procurement system and the Jinancial administration system. The UNAC has made plans for the COMPRASAL modules to be integrated with SAFI from the design stage, so that a single operation will simultaneously trigger operations related to both procurement and financial management. This integration i s facilitated by the fact the W A C comes under the Finance Ministry and that responsibility for the technological design o f COMPRASAL lies with the Finance Ministry's Directorate o fTechnology andthe sameteam that is responsible for the SAFI. El Salvador CPAR 65 Public Procurement ODerations and Market Practices Indicator Generalities of the current system Recommendationaccording to international reference Procurement - Annual procurement plansare weak - Strengthen preparation o f planning capacity procurement plans by means o f a specialized manual, a help desk, and the holding of a fair to publicize said plans EfJiciency of - InElSalvador efficiency levels - The strategic planhas to define goals procurement (costs, duration, suspended to make progress as far as efficiency practices and processes) appear to be above the is concerned management Latin American average Functionality of the - Large and medium-sizedcompanies - Implement the strategy to open upto public procurement are less than 1%and yet they the competitive advantagesofthe market represent 93% o fthe amount MIPYMES - contracted by the government - Develop interoperability with the The country has international providers registry o fthe Central contracting experience American countries Incorporationof - The designhas beencompleted - Place into operationand monitor MIPYMES Governmentsupply - There are no such strategies even - Based on market studies, design strategies though they are considered urgently procurement strategies for fuel, needed incertain areas medications, andproducts o f common use - Evaluatethe advisability o f consolidatingprocurement by means o f framework contracts inareas selected according to market studies andprojections 21. Planning public procurement. The planning o f public procurement traditionally has been very weak, and in the majority o f cases procurement plans have been regarded as a formality. Recently, the publication o f plans on COMPRASAL beganto generate an interest in improving them. DR-CAFTA procedures also have helped to drive home the importance o f good procurement planning. Aware o f the needs, the W A C has plans to strengthen training for the preparation o f procurement plans; to set up a help desk with the UACIs that are the most advanced inthe field; andto holdinthe month of October or November o f each year a fair at which public entities can show potential providers the demands that are projectedfor the following year. El Salvador CPAR 66 22. EfJiciency of procurement management. In El Salvador, public procurement i s proportionally more efficient in terms o f cost, duration, and failed processes than in the average Latin American country. The cost o f participating in a bid selection process i s relatively low (usually below US$20) but there are barriers to entering caused by the cost o f the guarantees demanded from all bidders. Available data show that the duration o f the provider-selection process tends to be shorter than the regional and subregional average. The entities do not frequently incorporate any requirements other .thanthose demanded by LACAP. The contracting o f public works between2001 and 2003 to help the country recover from the damage caused by the earthquakes showed efficiency levels that on several occasions earned international recognition. In order to consolidate these relative advantages, the strategic plan should set higher efficiency goals attainable by reducing administrative costs, shortening timeframes, and cutting down on requirements and paperwork. 23. Functionality of the public procurement market. The organized business sector in ElSalvador has a highcompetitive ability because it has been increasingly exposed to the international market. Large companies are the habitual main suppliers o f the state. In turn, small businesses and micro-businesses, which make a considerable contribution to economy and the generation o f jobs, have had little access to public contracts. The concentration o f public procurement inEl Salvador can be seen inthe following table: ElSalvador Number of Contracts and Amount Contractedby Private Enterprises with the Public Sector brokendown by Company Size, 2005 TYPe # % US$ Maximum # workers YOamount % number sales year contracted contracts Large 126 0.03 N o limit > 100 55 11 Medium 1,402 0.77 4,571,000 51 a 100 38 58 Small 15,777 3.07 686,000 11a50 5 29 Micro 496,365 96.63 69,000 < 10 2 2 Total 513,670 100.00 - - 100 100 Source: UNAC Large and medium-sized companies, which are less than 1% o f the total amount o f enterprises in the country, together accounted for 93% o f the amount o f the contracts, while micro-enterprises represent 97% of the total companies but accounted for only 2% o f the total amount o f the contracts. Consequently, the table shows that Salvadoran public procurement has a marked preference for large companies (55% o f the amount o f the contracts) and medium-sized companies (38%). The public sector has acquired experience with international contracts within the framework o f external credits. An assessment o f projects shows that, in general, the process o f selecting providers or contractors by means o f international bids and executing the projects afterwardwere accomplished without any major problems. El Salvador CPAR 67 24. Incorporation of MIPYMES. The concentration o f public procurement has ledthe STP to contract a plan to design incentives for MIPYMES participation in public procurement. The guidelines for the design o f the project, which i s currently under way, i s to reduce costs and eliminate barriers for entering, provide training, and combine large- scale procurement with small-scale purchases located over all parts o f the national territory so that the smaller companies can find competitive advantages in contracts with the state. 25. Government supply strategies. El Salvador does not have any supply policy for products and services o f strategic interest, with high public demand, or with very imperfect markets. The STP and UNAC have made plans to design strategies for the procurement o f fuel and medication; undertake studies on the advisability and impact o f framework contracts; and design mechanisms for collective procurement o f products that are o f common use at several entities. The mission concurs with these plans and has incorporated them into the recommendations. Transparency and Probitv of the Public Contracting: System Indicator Generalities of the current system Recommendation according to international reference ' Existenceof - The CCR has strengthened external - Continue processesto strengthen the effective control control o f procurement based on the CCR's control o fprocurement and auditing LACAP activities, stressing incorporationo f systems - The entities are makingprogress in the capacity to control based on the internal control area basedon the digital information (invisible control) COS0 report Existenceof - The appeal mechanism is effective II eficient and efficient mechanismsfor - Arbitrage and conciliation for the appeals and resolution o f disputeshave been resolution of generalized successfully disputes Citizen oversight - Decisioninfavor o f full transparency - Make known to the general public by means o f COMPRASAL the COMPRASAL dissemination module's ability to exercise citizen - Create capability to receive and oversight process on-line complaints about contracting processes El Salvador CPAR 68 Degree of access to - Untilnow scant informationon - Manageto get the institutionsto information procurement has been available. place all o ftheir procurement COMPRASAL i s beginningto activities inthe COMPRASAL remedy this situation - Create the awarenessthat all citizens dissemination module have the possibility o f looking up information on procurement Existence of ethical - The Government has defined a policy and anti-corruption - anda set ofanti-corruption measures. measures The perceptiono f corruption in public contracting i s proportionally - COMPRASAL is initself an anti- low corruption subsystem and plansto carry out coordination with the other subsystems and organizations 26. Control and auditing systems. The LACAP provided the legal basis for the Court o f Accounts to have a tool to improve control over procurement processes. A large number of Court of Accounts officials have been trained inthe LACAP and the control procedures related to public procurement. During the past two years the Court o f Accounts has strengthened control measures and has obtained recognition from the people and the entities under its control. It i s recommended that the Court o f Accounts set up an electronic system to control procurement based on the information in COMPRASAL and SAFI, using the procedure that has become known as "invisible control" because at any point one can call up and compare the information generated by transactions during all o fthe phases o f the procurement process. Over the past two years, the Court o f Accounts has established technical norms and standards for the strengthening o f internal control. Within this framework, each entity has its own internal control norms based on the COS0 report. Nevertheless, the challenge o f strengtheninginternal control is still inplace, because it continues to be weak in several government agencies and inthe majority o f municipalities. The Prosecutor General of the Republic represents the state in contracts for the procurement o f real estate in general and movable property subject to a biddingprocess, which implies that the aforementioned official has to sign the contracts. The mission was able to confirm that inpractice its passage through the Prosecutor General's Office does not hinder the contracting process or increase the contractingtimeframe. 27 Mechanismsfor appeals (petitionsfor review) and resolution of disputes. Appeals having to do with selection and contracting processes are submitted to the responsible administrative authority and the authority has three working days to accept or reject it, and once accepted it i s allowed 15 days to respond. If 15 days go by after the petition is accepted and the administration has not issued a resolution it will be understood that the El Salvador CPAR 69 matter was resolved ina manner that i s favorable to the complainant. After exhausting all administrative channels, the interested party has 60 days to resort to the Supreme Court o f Justice, which issues a ruling. These procedures were considered satisfactory for DR- CAFTA. The mechanisms for conciliation and arbitrage in cases of dispute have functioned satisfactorily. At present the UNAC i s conducting a study aimed at making conciliation and arbitrage mechanisms more rapid and efficient during the processes o f preparation, selection, execution and guarantees related to public procurement. 28 Citizen oversight. Common citizens are familiar with and trust the LACAP. This trust i s a vulnerable commodity that has to be preserved and strengthenedwith actions to enhance transparency since there is not a mass perception of corruption in procurement. The development o f COMPRASAL, incorporating all of the UACIs and with full guarantees for transparency and facilities for citizen oversight, is decisive in order to increase the people's confidence. It i s necessary for COMPRASAL to rapidly develop the capacity to receive complaints, to make arrangements with the pertinent authorities for quick and appropriate attention to these complaints, and to guarantee to the complainants and the community information on the status and resolution of any legal processes launched as a result ofthese complaints by the citizens. 29. Access to information. The Government considers that the most important measure to prevent and combat corruption in public procurement i s by guaranteeing full access to information by means o f the development o f COMPRASAL. The mission recommends that in order to attain this goal, COMPRASAL should include the possibility that any person can rununrestricted searches within the procurement database andbe able to make a cross-check o fvariables without any restrictionwhatsoever. 30. Ethical and anti-corruption measures. Recently, several strategies for the development o f ethics and the prevention and control o f corruption were placed into operation in El Salvador. Among them it i s worthwhile to mention that codes o f ethics were approved for the entire public sector. A Government Ethics Committee was formed with rankingmembers o f the administration among its members. The Court of Accounts has startedto issue reports with comments on public administration. El Salvador CPAR 70 APPENDIX A1 COMPARISONLIST BETWEENLOCAL PROCEDURESFORPUBLIC BID AND THE POLICIES OF THE WORLD BANK -- Yes N o BankStandards 1. Are there eligibility restrictions basedon Not allowed nationality o f bidder and/or origin o f goods (other thanprimary boycotts)? X 2. Are there primaryboycotts which are Only primary boycotts are established by law? X acceptable. 3. Are biddingopportunities advertised inthe Required local press? X 4. Are prospective bidders allowed at least 30 Required days for bidpreparation(except for commoditiedsmall volume contracts)? X 5. Are contractors/suppliers pre-qualified for Required specialized/large volume contracts? X 6. Are experience, technical and financial Required minimumrequirements (for pre-or post- qualification) explicitly stated inthe X documents? 7. I s an invitation to pre-qualify advertised for Required each procurement involving large volume or complex potential contracts? X 8. To ensure eligibility, are foreign firms Not allowed requiredto form ajoint venture with local X firms? 9. Arejoint venture partnersjointly and Required severally liable? X 10. Are there set limitations to the numbero f Not allowed 11 firms that can bid for a contract? X 11. Are parastatal entities allowed to bid? Acceptable only ifthe entity (i) i s financiallv autonomous. (ii) El Salvador CPAR 71 operates under commercial law, X and (iii)s independent from i borrower and the contracting organization. 12. Are biddersrequiredto register with a local Any such practice should be or federal organizationas a prior condition discouraged. Acceptable only if for bidding? registration process and criteria X do not keep foreign firms that are efficient, well-qualified, and have reasonable costs from competing. - 13. Are extensions to bidvalidity period Acceptable only ifjustified by allowed? X exceptional circumstances. 14. Are there restrictions on the means o f Not allowed, except when bidders delivery o fbids? have to submit physical samples. In any such case bidders can be asked to deliver bids by mail, by courier, by hand, etc. 15. I s preference given to suppliersor Not allowed contractors based on registration region or locality, the small size o f their business, affiliation with ethnic groups, etc.? 16. Are there restrictions related to source o f Not allowed, except for locally labor andmaterial? available unskilledlabor 17. Ispublic bid opening required? Are the bids Required opened immediately or shortly after completion o fthe bid submission deadline? X 18. I s a "two envelope" bid opening procedure Not allowed permittedfor procurement o f goods or contracting o fworks?4 X 19.A new bid i s automatically required when Acceptable, provided all qualified an insufficient number o f offers is received? bidders are allowed to bid, the process i s efficient and no serious delavs occur. All the envelopes containing technicalproposalsare openedfirst and, after these havebeenexamined, the envelopes with the financial proposalsfrom all or only the qualified bids that meet the requested requirementsare openedinasecondround. El Salvador CPAR 72 J I 20. Are procedures to restrict the admissibility Not allowed o f bidders usedduring bid evaluation^?^ 21. I s award made to the qualified bidder whose Required bidmeets the requirements andhas been X evaluated as the cheapest? 22. Are price negotiations conducted with Not allowed, except when the bid "winning" biddersprior to signing of price i s substantially above market contract? or budget levels andthen only if negotiations are carried out to try to reach a satisfactory contract through reduction inscope and/or reallocation o f risks and responsibilities that can result ina reduction inContract Price. (See paragraph 2.60 o f the Regulations) 23. Are price adjustment provisions generally Not required, but recommended for used? works contracts o f one year or more indurationwhenthe countryhasa highinflation rate. 24. Are the terms and conditions used for the Required(to be acceptable they procurement o f goods and contracting o f should be balanced and should works generally suited to the size and nature reasonably and clearly address the o f the projectedcontract? most important issues that might cause problems during execution, such as allocation o f risk, payments, inspections, completion and acceptance o f goods or works, insurance, guarantees, changes, contract remedies, force majeure, applicable laws, rescission o f contract, etc.) 25, Are contract scope/conditions modified Acceptable, but the Bank has to during execution? approve these changes inadvance on the basis o faprior review ifthis is established inthe Loan Agreement. 'Rejection of bids outside a specific price range. El Salvador CPAR 73 This annex was preparedonthe basis ofthe practices ofthe Ministry of Public Works. El Salvador CPAR 74 APPENDIX A2 COMPARISON OF IDBCONTRACTING POLICIES AND PROCEDURES AND THE LAW ONPUBLIC ADMINISTRATION PROCUREMENTAND CONTRACTING (LACAP) OF EL SALVADOR FORTHE PROCUREMENTOF GOODS AND CONTRACTINGOF WORKS .. - IDB LACAP Originofgoods Origin of goods M u s t originate in one o f the Bank's eligible Has n o restriction member countries. Eligibility Eligibility Iffinanced by the Bank, the bidder of goods or Has no restrictions for works contractors contractor o f works must meet eligibility requirements. Review o f Documents Review o f Documents The Bank allows the interested parties to Provides an opportunity to examine the examine the BidDocuments before buying documents prior to purchase. them. Alternative Tenders AlternativeTenders The Bank allows alternativetenders The Law does not provide for alternative tenders even though it states that the bid specifications will define the method for submission of bids. Addendas Addendas Canbe issuedprior to closingofpresentationof Time is not defined, Art. 50 tenders deadline. The executingpartiesare advisedthat, ifnecessary, they can and should extendthe bid openingscheduleinthe event an addendumis issued. ClarificationofBiddingDocuments. ClarificationofBiddingDocuments The contracting agency can receive from The Law does not provide for Bidders requests for clarifications related to clarifications; it provides f o r consultations the Documents. Questions can be raised up to (Article 51). Inquiries in writing can be 21 days prior to closing o f presentation 01 received before the closing date for tenders, and the contracting party must delivery o f tender and must be answered provide a response prior to that date. and communicated in writing to all interested parties who acquired the biddingdocuments. El Salvador CPAR 15 Extensionof BidValidity Period Extensionof BidValidity Period The Borrowerwill evaluatethe tenders and award Yot specifically providedfor inthe Law. the contract within the periodindicatedunder validity ofthe bid. Ifjustified due to exceptional reasons, an extensionof this periodwill be requested inwriting to all biddersprior to expirationo fthe originalperiodandthe Bankwill be notified. ReparableErrors or Omissions ReparableErrors or Omissions The BiddingDocuments should makea distinctionbetween errors and omissions that The Law does not contemplatethem are reparableandthose that are not, inboth Jirectly, but requests that they be the pre-qualificationand presentation-of-bids :onternplatedinthe bidspecifications phases. :Article44). Formalitiesfor opening of bids 'ublic openingofbids Bidsreceivedafter the date establishedfor Bids receivedoutsidethe periodand bids their submissionwill be returnedwithout :hatdo not guaranteemaintenanceof the beingopened. Bidswill not be rejectedduring Iffer shallbe excludedas a matter of law, the opening event, they will only be opened 4rticle53. and any comment will be includedin the minutes. Purchasingdocuments and tenderinga bid 'urchasing documentsandtenderingabid The Bank allows bids tenderedto be eligible [norder to tender a bid the documents evenwhenthe biddingdocumentswere not nust be purchasedfrom the Contracting acquiredfromthe executingagency. igency . Advance payment Advancepayment The Bankallows advance payment under Jp to 30% of the totalvalue of the works, specialcircumstances. goods or services to be contracted.Art. 69 Protests 7ilingofpetition Biddingdocuments must indicateanappropriate rhepetitionfor reviewshouldbe forum for resolution ofprotestsor claims raised )resentedinwriting to the officialwho up untilthe signingofthe contract with the brdered the action beingprotestedwithin contractor, as well as a timeframe to presentthem ive workingdays beginningthe day after -generallynotlessthan10calendardaysfrom iotification. Article 77 the date ofthe award. BidOffer Guarantee BidOffer Guarantee To indicatean amount and not a percentagein rhe value of the guarantee will fluctuate the document, even though in practice, and for letween 2% and 5% of total budgetvalue. calculation purposes, these guarantees can irt.33 fluctuate between 1% and 3% of the estimated price of the works dependingon the size of the El Salvador CPAR 16 works; for small contracts, it might not be required. Guarantee of execution or compliance with Guarantee of compliance with contract contract Within twenty (20) daysfollowingnotificationoi For works, the amount of the guarantec the awardandbeforesigningof the contract,the cannot be less than lo%, and for goods i awarded bidder must submit a guarantee oi can be up to 20%. Art. 35 compliancewith contract. Guarantee of good investment of advance Guarantee of good investmentof advance payment payment Presentation of this guarantee will be a Presentation of this guarantee will be : requirement for delivery of the advance requirement for delivery of the advanci payment. The amount of the guaranteewill be payment.The amount of the guaranteewil 100% of the advancepayment. be 100% of the advancepayment.Art. 34 Guarantee of good-quality work Guarantee of good-quality work I s grantedto the contractingentity to ensure I s granted to the contracting entity tc that the contractorwill respondfor any faults ensure that the contractorwill respond foi and defects he is found responsiblefor during any faults and defects he is founc the periodindicatedinthe contract; the responsiblefor during the period indicatec effective periodof the guaranteewill start in the contract; the effective period of thc when the work is definitively delivered.The guarantee will start when the work i! percentageof the guaranteewill be 10% of the definitively delivered. The percentage 0' final contract amount. the guarantee will be 10% of the fina contract amount. Art. 37 Works supervision Banon Supervision I s consideredas consultancy service. I t allows Contracts for supervisionof publicworks the entity that producedthe design to cannotbe enteredwith the same company supervise the works without any conflict of in charge of execution,or with the interest.The only guaranteesacceptableare company that producedthe design; non- for advancepayment and the withholdingof compliancecan produceinvalidity. Art. 10%. 106 Evaluation Committee Evaluation Committee Requires that an evaluation committee be The institution will appoint an evaluation appointed, but does not define the members of committee made up of: 1) The Head of tht the committee. UACI or the person he/she designates, 2) the requestor of the works, goods 01 iervice or hisher delegate, 3) a-financial analyst, and 4) an expert on the item(s) beingprocured or contracted. Art. 20 Notification of Results Notification of Results El Salvador CPAR 77 In writing, to all bidderswho took part in the Publicnotificationthroughnewspapersin process. circulation.Art. 57 Fines Fines Finesare notdefinedfor all type ofcontracts, Law stipulatesfines for delay incomplying mainlyfor works contracts. with all contractual obligations. Art. 85 Direct Contracting Direct Contracting No competitiveprocedurerequired,but Stipulates that three (3) or more justificationmust beprovidedandshould be quotations are required in order to create includedinthe loandocument. The competition. Representativeis authorizedto sign upto $30,000; larger amounts must be consulted This procurement method can be used with the ProcurementCommitteeandbe after a bid or tender has been declared technicallyor institutionallyjustified; time and deserted for the second time. cost are not considered. Contract Signature Contract Signature Signs contract in 28 days, sends to bidder for Inpublic biddingor invitationto tender, a signature and return contractis signedwithin 8 days. Art. 81 Incases of open shopping, the issuanceof a purchase order and invoice or equivalent document at the moment the goods are delivered or the service is provided will suffice.Art. 79 PRIVATE BIDDING(or Invitationto Tender) PUBLIC BIDDINGBY INVITATION ($12,672.00 - $100,584.00) 3ven though no amounts are set, there are eecommendations as to when this method should I s public. )e used. A list of biddersis preparedwith at least four :tis not public corporations or individuals, national or [nvitationis made in writing to a short list of international. Art.66. Iarticipants. Invitation: in writing or by any other nvitation: technological means that allows evidence By means of a letter sent by the contracting of the invitation. ,arty to the previously-definedshort list. The invitation and names of those invited Vo publicity i s required. should be published at least once in newspapersthat are in circulation.Art. 67 VATIONAL PUBLICBID (LPN) PUBLICBID (S100.584.01) El Salvador CPAR 78 For amounts lower than LPIs, for example: Nationalor international. Goods $250,000 Works $1,500,000 or as indicated onthe loan When only one offer is presentedina document. biddingprocess,this situationwill be recordedinthe correspondingminutes. I s publishedinthe nationalnewspapers and This sole tenderwill beanalyzedby the participationofforeignbiddersfrom eligible BidEvaluationCommitteeto verify Bankmembercountriescannotbe prohibited. compliancewith technicalspecifications Evaluationof bidswill take placeprovideda andwith the conditionscalledfor inthe minimumoftwo bids are submitted.When a bidor tender documents, whicheverthe single bid(sole offer) is submittedin a bidding case. I fthe resultsindicatethat the bid process,the ContractingAgency cannot award offercomplieswith the established the contractunlessthe Bankhasno objection requirementsandis consistent with becausethe offerhas reasonablecost and marketprices,the correspondingcontract quality. will be awardedto the bidder. Art.63. LACAP procedurescan be used for LPNs provided there is no conflict betweenits Allows interestedpartiesto review the provisions andthe Bank's policies and documentsprior to purchase. procedures. Does not allow presentationof bidsifthe InternationalPublic Bid (LPI) documents havenotbeen obtainedfrom Requiresinternationaland national the executingparty. publication whenever the amounts exceed the limitsindicatedabove. Formalizationof Commitment Formalization of Commitment Awarding of bid formalizes commitment between Signingof contractformalizescommitment the Contracting Party andthe Contractor. betweenthe ContractingParty andthe Contractor. El Salvador CPAR I 9 APPENDIX B LISTOF LAWS, REGULATIONS AND REFERENCES CONSULTED Lawsand Regulations Political Constitution of the Republicof El Salvador. Decree No. 38, December 15, 1983. Law of Mediation, Conciliationand Arbitration. DecreeNo. 914, July 23,2002. Law ofthe Court of Accounts of the Republic of El Salvador. Decree No. 438, August 31, 1995. Law about Illicit Enrichment of Public Officials and Employees. DecreeNo. 2833, April 24, 1959. Civil Service Law. DecreeNo. 507, November 24, 1961. Organic Law of Public Prosecutor's Office. DecreeNo. 603, March4, 1952. Law onthe Creation of a Fundfor the Economic and Social Development ofthe Municipalities. DecreeNo. 74, September 8, 1988. Municipal General Tax Law. DecreeNo. 86, October 17, 1991. InsuranceCompanies Law. DecreeNo. 844, October 10, 1996. BankLaw. DecreeNo. 697, September 2, 1999. Law of Credit Institutions and Auxiliary Organizations. DecreeNo. 94, August 17, 1970. Internal Regulation ofthe Executive Branch.DecreeNo. 24, April 18, 1989. Internal Control Technical Regulations (Court of Accounts of the Republic). DecreeNo. 15, December lSt, 2000. Municipal Code. DecreeNo. 274, January 31, 1986. DecreeNo. 255, January 14,2001. All MunicipalCouncils inthe Country are authorized to use the funds grantedby the Law on the Creation of a Fundfor the Economic and Social Development of the Municipalities, correspondingto the monthof January 2001. Decree No. 180, October 26,2000, giving the Municipalitiesinthe Country the power to use the resourcesassignedby the Law on the Creation of a Fundfor the Economic and Social Development of the Municipalities. References Procurementand Contracting ManagementManual applicable to Central Government, Autonomous Official Institutions andMunicipalities. October 1,2003. Draft Regulation ofthe Law on Public AdministrationProcurement and Contracting. June 2001. MinistryofPublic Works, Transportation, Housing andUrbanDevelopment. Work Accomplished Yearbook, June 2001-May 2002. MinistryofPublic Works, BidNo. 15, 2003. Project: Construction of"Prolongation of Order of Malta Boulevard and Widening o f Huizucar Street (Section I)".Bid Specifications for Work Construction. Ministry of Finance Report on State Financial Management 2002. MinistryofFinance, Regulations for ProcurementandContracts. Development and ImplementationPlanfor the Public AdministrationProcurement and Contracting System, December2003. Ministry of Finance (UNAC) StrategicPlan, 2003. El Salvador CPAR 80 Ministry of Public Works. BidNo. 14, 2003. Project: Construction Supervision. "Prolongation of Order of Malta Boulevard and Widening of Huizucar Street (Section 11)". Terms of Reference for Work Supervision. October 2003. Ministry of Public Works, BidNo. 016,2003. Project: Improvement of "San Idelfonso- Villa Dolores - Sensuntepeque" Tertiary Road. BidSpecifications for Work Construction. September 2003. Ministry of Public Works, Road Managementat the Service of People. The process of reform at the Ministry of Public Works of El Salvador. June 1999-May 2003. MinistryofPublic Works. Certification regardingthe presence as observersofthe reception, opening and assessment of bids inTender No. 22/2002. Ministry of Public Works. Certification regarding the presence as observers of the reception, opening and assessment of bids inTender No. 16/2002. Ministry of Public Works. Managementof Internal Audit. Report/MOPTVDU/17/2003. September 2003. MinistryofPublic Works. ManagementofInternalAudit. Report/MOPTVDU /GAI/07/02. April 2002. Chamber of Commerce and Industryof El Salvador, Work Accomplished Yearbook 2002. Court ofAccounts ofthe Republic of El Salvador, Audit Directorate, Administrative and Economic Development Sector. Special review of the State Financial Management Report that includes the execution of the General Budget and the statementsthat show the Situation o fthe Public Treasury and Fiscal Holdings, correspondingto the period January 1through December 31,2002, datedJune 30,2003. Court ofAccounts of the Republic, Work Accomplished Report 2002. ASIA (SalvadorianAssociation of EngineersandArchitects), Professional EthicsCode. Governmentof El Salvador. Technical Secretariatof the Presidency ofthe Republic, Unit for Public Sector Modernization. GeneralRegulation for Modernization of the Executive Branch, 1999. Governmentof El Salvador, Technical Secretariatof the Presidency of the Republic, Modernization Unit.Decentralization Policy, January 2000. CASALCO, Construction, July -August 2003. WesternCatholic University. Catalogue2003. Democracy Audit: El Salvador, 1999.USAID Price Waterhouse Cooper. Ministry of Public Works. Report on previously agreedupon procedures. Public bidUACI-MOPTVDUNo. 15/2001"Supervision of the Design and Construction of Apopa - Sitio delNiiio Road, Section Sitio del Niiio -(Nejapa - Constitution Boulevard) Intersection" December8,2001. Price Waterhouse Cooper. Ministry of Public Works. Report on previously agreedupon procedures.BidUACI-MOPVTDUNo. 27/2001 "Design and Construction of Apopa - Sitio delNiiio Road, Section Sitio delNiiio -(Nejapa - Constitution Boulevard) Intersection" December 8,200 1. Some Examplesof definition of PYMEs (Small and MediumSize Enterprises) and enterprises of other sizes. COMURES Proposalfor creating a "Municipal Systemo f Transparency". September 2003. El Salvador CPAR 81 Central Reserve Bank of El Salvador. Quarterly Magazine: January -February- March 2002. Briceida Lavielle et al. LatinAmerican Index o f BudgetaryTransparency. A comparison between 10 countries. 2003, Office of the Prosecutor General ofthe Republic. Work Accomplished Yearbook 2002 - 2003. El Salvador CPAR 82 APPENDIX C LIST OF PEOPLEINTERVIEWED TECHNICAL SECRETARIAT OF THE PRESIDENCY OF THE REPUBLIC Lic. CarmenRegina ArCvalo. Director Lic. Victoria Eugenia Miron, NationalProject Coordinator, Procurement and Contracting. Lic. EsmeraldaTorres de Posada, Procurementand Contracting Project. Lic. Martha Aguila, ProcurementUnit Lic. IzelaMartinez, ProcurementUnit Dr. Silvana Rubino-Hollman, Consultant COURT OF ACCOUNTS Dr.R.HernhContreras R., President Lic. Benigno Vasquez Figueroa, Audits Director, MunicipalSector. Lic. Alfonso BonillaHernhdez Lic. Walter Alarcon Lic. LuisAmilcar Varela U Lic. Martha Dinoro de Palomo, Legal Affairs Director OFFICE OF THE PROSECUTOR GENERAL OF THE REPUBLIC Lic. Victor Ernest0 Rodriguez Diaz, UACI Chief MINISTRY OF GOVERNMENT Lic. Haydee Calvo Escobar. GOVERNMENT CENTER Engr. JosC Oscar Medina, Executive Director Engr. Carlos Armando Rivera, ProcurementUnit MINISTRY OF FINANCE Dr.Juan JosC Daboub, Minister Lic. Guillermo Hernhdez Cot0 Lic. Elsa Gallado. Lic. Mauricio Sosa de la Cruz UNA C (Regulatory UnitofProcurementandContracting) Lic. Salvador Portillo, Director Lic. Antonia Maria Gonzalez de Hernandez, Training and Technical Coordinator Mrs.SujinLopez de Jaimes Engr. JosC Enrique Lopez Perla MINISTRYOF EDUCATION Dr.S a ~Aguirre, UACIChief l Engr. Marilyn de Jovel El Salvador CPAR 83 MINISTRYOF PUBLIC WORKS Lic. Jose A. Quirbs, Minister of Transportation, Housing and UrbanDevelopment Engr. Carlos M.Duque Gonzalez, Vice Ministerof Public Works Engr. JosC Jacinto Reyes, UACIDirector Engr. Rene Mauricio Rodriguez, Works Manager Engr. Oscar Alfred0 Diaz, Director of Road Planning Unit Lic. Oscar Lara, Auditor Engr. Rene Gbmez, Work Supervision Director MINISTRY OF ENVIRONMENT AND NATURAL RESOURCES Mrs.Mabelde Molina, UACIChief Mr.LuisArmando Trejo, Administrative Area NATIONALADMINISTRATION OF AQUEDUCTS AND SEWAGE(ANDA) Lic. Victor ManuelDominguez, UACIDirector MUNICIPAL MAYORALTY OF SAN SALVADOR Lic. Carlos Albert0 Rivas Zamora, Municipal Mayor Mr.HugoArmando ArCvalo, UACIDirector Mr.LuisE.Rosales Mrs.MagdaBaltodano, ChiefofPublic Relations NATIONALPOPULAR HOUSING FUND(FONAVIPO) Lic. Ana Margarita Salinas, UACIDirector Lic. Marcos Iglesias, Auditing and Supervision SOCIAL INVESTMENT FUND FORLOCAL DEVELOPMENT OF SALVADOR Lic. Patricia Forten, General Manager Mr.MoisCsMiguel Sbchez, ManagementDeputyDirector PROGRAMTO SUPPORT REFORM OF THE JUSTICE SECTOR Mr.JuanJosC Castillo, GeneralCoordinator Miss Silvia Bazan, Project Logistics Mrs.MorenaPerez, ProcurementArea SALVADORIAN SOCIAL SECURITY INSTITUTE Lic. Ivania MaribelAlvarez de Nieves, UACI Chief SALVADORIAN MUNICIPALDEVELOPMENT INSTITUTE Lic. JosC Leonidas Rivera Chevez, Executive Director CHAMBER OF COMMERCE AND INDUSTRY OF EL SALVADOR Lic. Jorge JosC Daboud, Vice President Lic. Rosario de Barriere, Technician inEconomic and Trade Affairs Mr.MauricioMendoza El Salvador CPAR 84 Lic. Jaime Antonio Baires, Technical Assistant o f Technical Studies SALVADORIAN CHAMBER OF THE CONSTRUCTIONINDUSTRY (CASALCO) Engr. Guillermo A. Ruiz Maida, President Mr.OrlandoAltamirano, GeneralManager Engr. Leopoldo A. Ventura Urrutia, Executive Director Mr.Miguelh g e lArCvalo Ortuiio, Technical Manager NATIONAL ASSOCIATION OF PRIVATE ENTERPRISES Mr.Waldo JimCnez, Technical Manager SALVADORIAN ASSOCIATION OF ENGINEERS AND ARCHITECTS (ASIA) Engr. Ricardo Lagos Moncada, Vice President Mr.JosCArriaza, ExecutiveDirector Lic. JosC L.Perez Sbchez, General Manager CONSULTANTS ASSOCIATION (ACODES) Engr. Melecio Rivera ARCHITECTS ASSOCIATION (CADES) Arch. Hugo Barrientos LA CENTRO AMERICANA, S.A. (MAPFRE System) Sr. Jose Antonio Arias Bermudez, Finance andAdministration Manager CENTRAL DE SEGUROS Y FIANZAS Eng. Eduardo EnriqueChac6n Borja, President Mrs.Ana Irradiade Iraheta, FinanceManager INTERAMERICANDEVELOPMENT BANK Mr.Ricardo J. Rovira, Procurementand Sectors Specialist Mr.Phillipe Dewez, RepresentativeinElSalvador USAGENCY FORINTERNATIONAL DEVELOPMENT Mr.Todd M.Sorenson, Democracy Office Engr. Mauricio Herrera C., Project Manager Mr.Parviz Shahidinejad, Financial Administration Specialist PROBITY Mr.JaimeLbpez, Executive Director Mr.Jose ManuelCastillo, Coordinator CONSULTA S.A. (Engineering and Architecture Consultancy) Mr.Victor A. Figueroa, Civil Engineer CONSTRUCTORA SIMAN El Salvador CPAR 85 Engr. Rafael Siman, Executive Director CASTANEDA INGENIEROS, S.A. DE C.V. Eng. Jose Raul CastaiiedaVillacorta, President R.Z. ASOCIADOS Lic. Jose Luis Rodriguez COSTRUCTORA BETON Mr.Edmundo Roeder Mr.HanssRoeder CORPORACIONM& S Engr. JuanJose Lopez M.,General Manager ARC0 INGENIEROS S.A. Engr. Gustavo Cartagena, General Manager UNIVERSIDADCATOLICA DEOCCIDENTE Mr.MoisCsAntonio Martinez, Vice Chancellor 90°W 89°W 88°W To Quezaltepeque To Nueva To Ocotepeque Ipala GUATEMALA MetapánMetapán La Palma La Palma Cerro HONDURAS Lago de Lago de El Pital (2,730 m) EL SALVADOR To GüijaGüija Jutiapa ANA Candelaria de Candelaria de la Frontera la Frontera Nueva Nueva Tejutla ejutla To Concepción Concepción Jalpatagua SANTA C H A L AT E N A N G O Lempa ChalatenangoChalatenango SantaSanta EmbalseEmbalse To 14°N ChalchuapaChalchuapa AnaAna Paz SAN Cerrón Grande Cerrón Grande Lempa Marcala To C A B A Ñ A S Taxisco L A IlobascoIlobasco Sensuntepeque Sensuntepeque La Hachadura La Hachadura AHUACH A P Á N AhuachapAhuachapán Ahuachapán JocoaitiqueJocoaitique Volcán de AguilaresAguilares Suchitoto Suchitoto Santa Ana (2,365 m) SA L I B E R TA D Lago de Lago de Coatepeque Coatepeque LVA D CUSCATLÁN 14°N OsicalaOsicala Torola Ciudad Barrios Ciudad Barrios IzalcoIzalco Armenia Armenia O NuevaNueva SANSAN S A N M O R A Z Á N EspartaEsparta SAL ADOR SALVADOR R San Francisco San Francisco SonsonateSonsonate Lago de Lago de Cojutepeque Cojutepeque V I C E N T E (Gotera) (Gotera) S O N S O N AT E NuevaNueva Illepango Illepango San Salvador San Salvador San Vicente San icente To Santa Rosa Santa Rosa Goascorán Nacaome Acajutla Acajutla Jiboa Volcán de de Lima de Lima Vicente (2,182 m) OlocuiltaOlocuilta SantiagoSantiago L A Zacatecoluca Zacatecoluca Tecoluca ecoluca de María de María S A N M I G U E L San Miguel San Miguel U N I Ó N La Libertad La Libertad San Luis San Luis L A Lempa Volcán de PA Z PA San Miguel 90°W U S U L U T Á N (2,130 m) LaBahía La Herradura La Herradura d JiquiliscoJiquilisco deSan Miguel Bahía de Usulután Usulután Jiquilisco Grande Unión e La Unión La Unión EL SALVADOR Laguna de Laguna de Olomega Olomega SELECTED CITIES AND TOWNS Golfo de DEPARTMENT CAPITALS IntipucaIntipuca Fonseca NATIONAL CAPITAL PACIFIC OCEAN RIVERS MAIN ROADS This map was produced by the Map Design Unit of The 13°N World Bank. The boundaries, PAN AMERICAN HIGHWAY colors, denominations and NOVEMBER any other information shown IBRD RAILROADS on this map do not imply, on 0 10 20 30 40 Kilometers the part of The World Bank DEPARTMENT BOUNDARIES Group, any judgment on the legal status of any territory, 33401R 0 10 20 30 Miles or any endorsement or 2006 INTERNATIONAL BOUNDARIES a c c e p t a n c e o f s u c h boundaries. 89°W 88°W