Report No. 39594-CR Republic of Costa Rica Country Procurement Assessment Review (CPAR) November, 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 Costa Rica CPAR 11 ACRONYMS AYA Costa Rican Institute of Water and Sewage Systems IADB InterAmerican Development Bank BIRF International Bank for Reconstruction and Development CCSS Costa Rican Social Security Office CGR Office of the Controller General of the Republic CONAVI National Highway Council CPAR Country Procurement Assessment Review DGABCA HeadOffice o f Goods Administration and Administrative Contracting DGPN Head Budget Office DR-CAFTA Dominican Republic-Central America Free Trade Agreement ICE Costa RicanInstituteof Electricity I N S National Institute of Insurance MH MinistryofFinance MOPT MinistryofPublic Works and Transport OIT InternationalLabor Organization OMC World Trade Organization PIB Gross Domestic Product PN National Procurement Office PNB Gross National Product PNUD UnitedNations Program for Development PUSC UnitedSocial Christian Party SICA Administrative ContractingInformation System SIGAF IntegratedFinancial Management System TLC Free Trade Agreement UE European Union CostaRica CPAR 111 ... COSTARICA CountryProcurementAssessment Review (CPAR) CONTENTS PREFACE ................................................................................................................................... 4 EXECUTIVE SUMMARY ............................................................................................................. 6 ChapterI An Overviewof the PublicContractingSector Country Status.,........................................................................................................... . ............................................... 12 Public Budget and State Contracting .......................................................................... 12 13 Budget Classification and the State Contracting Profile............................................. 15 ChapterI1 The LegalFrameworkanditsApplications . ................................................... Legal Framework ....................................................................................................... 19 Analysis of Proceduresand Practices inthe Implementation ofthe LCA ...............20 19 Conclusions andRecommendations........................................................................... 24 Chapter I11 The InstitutionalFramework The Normative Function for Central Government Procurement (DGABCA) ............26 . ......................................................................... 26 TheExternal ControlFunction(Office ofthe Controller General ofthe Republic)...29 Autonomous Institutions....................................................................... . . 27 Conclusions andRecommendations........................................................................... 33 ChapterI V IncentivesandEffortsfor the ProcurementSystem Reform . ...................... Public Contracting through E-Procurement ............................................................... 37 International Agreements on Government Procurement.................................... 37 38 Conclusions and Recommendations........................................................................... 40 ChapterV Performanceofthe IDB andthe WB ProcurementProjects . ........................ 42 ANNEXES Annex I Listof IndividualsInterviewed 46 Annex I1 PrivateSector Performance ............................................................................... ............................................................................ 49 Annex I11 TheDR-CAFTA andthe PublicContractingSystem in CostaRica Annex A The ComparativeLCA Table and Chapter 9 on PublicProcurement . .............54 underthe DR-CAFTA and other LegalReferences 66 Annex B ComparativeMatrix of the DR-CAFTA Coverage . ........................................................... ......................................... 100 Annex I V Evaluationof COMPRARED 106 AnnexV Planof ActionRecommended ....................................................... ........................................................ A 4 9 Annex V I Progressinthe Implementationof Actions andRecommendationsbasedon the CR ReportCPAR ofJune,2005 ............................................................... 151 CostaRica CPAR iv PREFACE The CPAR is an analytical diagnostic tool that the Inter American Development Bank (IDB) andthe World Bank (WB) use to (i) programs gearedtowards improvingthe design public procurement system in Costa Rica and (ii) effectively coordinate with other more cooperation agenciesto identify priorities and activities for public sector reform. Inadditionto its value as a diagnostic tool, the CPAR is directly linkedwith the execution of programs contemplated in the Country Assistance Strategy for Costa Rica (CAS) set forth by the World Bank and IADB. Inthis sense, the CPAR supports both Banks in the execution of fiduciary responsibilities and the identification o f the strengths and weaknesses of public procurement in order to evaluate and manage potential risks in the use of the funds of bothinstitutions. This CPAR was compiled according to the internal World Bank directives issued on May 23, 2002, including: (i)the Memorandum of Initiationon March 22, 2005; (ii) interviews with representativesofthe public andprivate sectors conductedby experts from IADBand the WB during visits made to San Jose in the months of February-April of 2005; (iii) analysis of laws, subsidiary instruments,questionnaires, surveys and other informationand documents compiled during the CPAR fact-finding missions; (iv) the Country Assistance Strategy for Costa Rica (WB, 2004); (v) the workshop to evaluate the progress the Government has made inelectronic procurement heldon April 1,2005; (vi) presentationof the CR CPAR report to the Ministry of Finance, Comptroller's Office, and other relevant central government agencies, decentralized public entities and civil society on November 30, 2005 and; (vii) after the deference of clearance to the in-coming administration after elections in May 2006, a presentation of the CPAR to the new government administration and an updating of progress made at the government authorities' request on November 9- 10, 2006. This CPAR was preparedjointly by IADB andthe WB incoordination with officials from the Ministry of Finance and the Controller General of the Republic. The CPAR team was comprised of the following individuals: Hugo Betancor (Coordinator of the Anti- Corruption and Transparency Units, RE2/SC2, IDB), Roberto Camblor (Operations Specialist, RE2/SC2, TENDER), Joao Veiga Malta (Specialist in electronic procurement, IADB), Luis Tineo and Evelyn Villatoro (LCOPR, WB); invaluable technical assistance was provided by Jose MOSCOSO, Enrique Pinilla, Fernando Ocampo and Jorge Enrique Vargas (experts inpublic procurement). The team would like to thank Bernard Becq, Enzo De Laurentiis, Rajeev Swami, Carlos Felipe Jaramillo and Ana Lucia Armijos (WB) for their guidance and contributions regarding normative, institutional and financial managementissues. Contributing Peer Reviewers for this report were: Sabine Engelhard, Procurement Division of the Inter American Development Bank, Leonid Vanian, Senior Specialist (EASPS), Menahem Libhaber, Head Water and Sanitation Specialist (LCSFW) and Joel A. Turkewitz, Senior Procurement Specialist (OPCPR). CostaRica CPAR V In November of 2006, the Banks presentedthe CPAR report to the new administration authorities, discussed its content and assessed progress made with high-level government officials. Annex VI to this report summarizes the actions taken and progress made as of June of 2005 inthe implementation of the Plan of Action recommended inAnnex V to the report. Input for assessment of progress was received during the carrying out of a Discussion Workshop conducted in San JosC, Costa RicaonNovember 9-10,2006 withthe participation of specialists from the Banks and high-level Government Officials. CostaRica CPAR vi EXECUTIVESUMMARY Background information on the Country 1. Over the last decade, Costa Rica has made significant progress inthe area o f public procurement. The basic frameworks for norms, institutions and organization are strong. The overall capacity o f the system, and specifically the system for control, i s sufficient. Moreover, it is apt to conduct relatively efficient and transparent procurement operations throughout the public sector to execute budgets and reach institutional and development objectives. Notwithstanding, the system must be further modernized to incorporate new and effective public procurement methods so as to strengthen economic integration policies and market liberalization inCosta Rica. Other recent events have produced a need to fine-tune and further improve systems such as the incorporation o f advanced technologies for information processing and management (electronic procurement) and the commercial agreements signed by Costa Rica, specifically the Central American Free Trade Treaty- Dominican Republic (DR-CAFTA). 2. The growth strategy focuses on exports andthe liberalization o f foreign investment, much in the same way that the growing competitiveness o f the international markets o f certain Costa Rican sectors, including the electronic and service segments, non-traditional agricultural products and ecotourism, has driven worldwide economic integration. One o f the results o f these policies has been an increase in the demand for public services, infrastructure, and social programs. The leader role o f the State which is particularly strong in Costa Rica in the provision o f these services -given that fewer public services have been privatized in comparison to similar efforts in other countries in the region- has direct implications for the public procurement market and generates higher demand and attracts more participants from both the national and international private sector. Accordingly, DR-CAFTA incorporates important provisions on procurement; provides an additional opportunity for growth based on commerce; and stimulates the modernization o f the public procurement system. 3. Costa Rica i s considered a leader in information technology in Central America. It i s indisputable that electronic systems have significantly contributed to financial management and its control. The government's incipient electronic strategy promises to contribute significantly to the efficiency o f public resource administration, and the subsequent savings could be used to free-up space inthe Government's limitedbudget. An improvement i s also expected in government activities and in the accountability o f public officials. Specifically speaking, it i s probable that greater progress in e-procurement will contribute significantly to improving the efficiency and transparency o f the procurement system (at the level o f results) if initial efforts are focused on widely disseminating information in a consistent manner. Subsequent goals should introduce transactional phases that propitiate an improved consolidation o f demand and more effective procurement methodologies. CostaRica CPAR vii An overview o fthe Public Sector Procurement System 4. Public procurement is an important part o f the Costa Rican economy. During the period from 2003-2005, the average budget for procurement, works and services for the public sector was US$3,687,000,000, which represents more than 20% o f the GDP. This figure represents a significant portion o f the expenses budgeted by the Government (77%) and reflects and increase o f 3.6% for the period from 2001-2003. Despite this, public procurement has yet to be recognized as a key aspect in public sector spending management in Costa Rica and as such, it has not been fully incorporated in the financial management system. 5. Although the normative frameworks for public procurement and external control apply to all public entities, a degree of fragmentation exists in the system that impedes monitoring o f integral performance to draw general conclusions. The Procurement Law establishes the General Office for Goods and Administrative Procurement Supervision (DGABCA) as the procurement supervisory body within the Ministry o f Finance. Nevertheless, DGABCA only supervises central government agencies that make a limited number o f purchases and, as such, has little impact on and knowledge o f integral system management for public procurement. Moreover, the universe o f public procuring entities i s divided between the Central Government agencies, supervised by DGABCA, and autonomous entities that are regulated by the Controller Office Organic Law. This institutional array is not conducive towards implementation o f a centralized policy design approach and oversight o fthe public procurement system. All procuring entities are subject to external control by CGR, whose opinions have considerable weight inthe interpretation o f the normative framework. This concurrent supervision and the limited scope and role o f a specialized procurement policy has contributed to slow progress in developing an integral, long-term vision and a coherent conceptual framework that adequately incorporate government procurement policy objectives. This explains why the efforts to improve the system have been centered on specific technical and procedural aspects, as opposed to focusing on the need to create a more complete and encompassing system for public procurement. 6. A significant percentage o f the procurementbudget (93%) is concentrated ina few agencies- all o f which are autonomous- that are entitled to engage in procurement. Amongst these entities, the Social Security Office (CCSS), the Costa Rican Institute o f Electricity (ICE), and the Costa Rican Oil Refinery (RECOPE) manage 62% o f the procurement budget. Only 6% o f this budget i s managed by central government entities and 2% is handledby municipalities andlocal agencies. 7. One o f the reasons behind the heterogeneity currently found concerning procurement methods is that the thresholds for the use o f specific methods are not applied uniformly, but instead respond to the scale assigned to each institution according to the size o f its budget. Inaddition, the diversity o f procedures andtendering documents utilized at the institutional level has caused a proliferation o f application practices. Some o f the consequences o f this fragmentation are: inefficient planning, fragmentation o f contracts, CostaRica CPAR viii and the excessive use o f direct contracting, which result in a lack o f consolidation and efficiency inprocurement. 8. Another factor that limits the system's efficiency i s the insufficient use o f information technology as a tool for management and control. There are currently no technological barriers in Costa Rica; the problem lies in a lack o f strategic vision. Although each entity generates information on purchases, the quality and veracity o f this information varies. Worse yet, this information is not utilized effectively either at the entity or central government level for planning or control. The absence o f complete statistics on procurement and methods to evaluate the same also impedes the design o f efficient policies. This i s due to the fact that it i s difficult to identify patterns, learn from mistakes, and continue improving the system to achieve greater efficiency. Subsequently, efforts to determine ifthe public spending system i s achieving its development objectives efficiently are hampered. For example, in order to determine the value for the money relation, precise purchasing statistics are needed and strong ties must exist between procurement plans, the budget process and various aspects o f the financial management at the budget execution stage. The data used currently on budget execution are based on budget allocated and not on money actually spent. 9. The electronic procurement system, e-GP (COMPRARED), which is administered by the DGABCA under the supervision o f Ministry o f Finance, has achieved significant progress and the next phase should significantly increase the system's functionality. Despite the fact that a web site has been implemented to publishprocurement information, its use i s limited to Central Government agencies. Various entities are developing e-GP systemsthat will operate inparallel to COMPRARED. This approach will not contribute to efficiency or transparency given that it does not offer a single system that can be utilized by the entire public sector. COMPRARED has the technical capacity to provide reliable data but covers only Central Government entities and as such fails to make an effective contribution to the efforts to globally monitor public procurement inCosta Rica. 10. Although the entities that spend the most generally possess technical experience in procurement, their internal processes are unnecessarily slow. A study conducted on the three most important autonomous entities indicates that the procurement cycle for tendering includes many steps that may in fact not add value. For example, the internal process at CCSS requires 19 steps for a simplified procurement order for medicines. Ten different administrative offices must intervene in the process, which can take up to 169 days to complete from the date o f purchase requisition to the date on which the medicines are actually received. Public tendering takes an average o f 240 days; several modalities o f limited tenderings take between 225 and 163 days, and even direct procurement takes approximately 62 days. 11, Traditionally, Costa Rica has maintained a reputation for transparency, as compared to many countries inthe region. This reputation i s due inpart to a strong system o f control. The Controller's Office i s very competent and has a good reputation. It conducts reviews before, during and after procurement processes. Ineach agency, a single procurement process requires multiple reviews and approvals by several public officials CostaRica CPAR ix and committees. Nevertheless, this traditional method for procurement is not necessarily the most effective, as is shown by Costa Rica's recent decline inthe corruption perception indexes. Additionally, this approach can cause unnecessary delays and does not propitiate the accountability o f public officials. Modern methods propose strong internal controls based on an integral risk prevention strategy implemented at all levels o f the organization, and ex-post reviews are preferred over omnipresent ex-ante control. Costa Rica has adopted an internal control framework based on the method o f the Committee o f Sponsor Organizations o f the Treadway Commission (COSO) but has yet to implement this model throughout the public sector. The fragmentation o f the system -which complicates its interpretation- and the culture o f rigidcontrols have propitiated a culture that is overall risk adverse which frequently impedes efficient decision making. 12. The procurement process within IADB-WBprojects, including the GEF (donations for the environment), i s considered satisfactory despite the fact that some delays have arisen duringthe implementation stage. Most agencies incharge o f project implementation have designed procurement contracts according to IADB-WB norms and have utilized the Bank's standard tendering documents. The number o f complaints received has not been significant and the inspections conducted have not found evidence o f corruption, fiaud, mismanagement o f procedures, or misuse o f funds. Nevertheless, an issue that affects IADB and WB projects involves the interpretation o f the Constitution and the Local Procurement Law (LCA) with regards to the use o f IADB and WB procurement guidelines. 13. 13. The L C A grants preference to the purchasing guidelines o f IADB and the WB above those o f LCA within the limits o f the loan agreements and the stipulations o f the Constitution. Despite this, some o f the laws passed by the National Assembly (which approves loan agreements for project financing) are not aligned with ad-hoc practices and the manner inwhich some executing agencies and the CGR interpret the LCA. Frequently, L C A requirements place restrictions on IADB and WB procurement policies, propitiating delays at project preparation and implementation stages. This issue affects both the procurement o f goods and works as much as the selection o f consultants. Other related aspects to this issue include bidder eligibility (short list), guarantee requirements, and procedures for negotiation o f contracts. The majority o f IADB and WB projects require assistance from consultants, either firms or individuals. As such, dialogue i s needed to achieve harmony and effectiveness. Plan o f Action Recommended 14. This report was designed to provide a guide map for dialogue with the Government. Although it includes various recommendations, Costa Rican authorities must be engaged in a joint effort to develop a detailed plan o f action that includes a priority financing program. This effort should initiate once the issues and recommendations listed below have been discussed and agreed upon inthe presentation workshop. This encounter will also provide an opportunity to identify the individuals who will lead the pro-reform effort and determine their roles inthe implementation o f the action planagreed upon. CostaRica CPAR X 15. Inorder to progress, Costa Rica should consolidate its considerable strengths and concentrate its efforts on modernizing its system to achieve its fill potential. The principal challenges include: (i)to simplify the implementation and control processes; (ii)to establish a unified strategic vision and tools for consistent management; (iii) to strengthen the ability o f the entities in charge o f the implementation process to plan, monitor, and evaluate procurement; and (iv) to maximize the use o f information technology and modern procurement programs. It is more than likely that consistent efforts inthe aforementioned areas will generate significant savings through improved use o f resources, efficient processes, and better prices as the market o f public procurement becomes more competitive and dynamic. Inorder to achieve these objectives, it would be recommendable to take the following priority actions. 16. To increase the efficiency o f the system for control. The CGR should reevaluate its tendency to issue technical opinions regarding procurement processes and concentrate efforts on strengthening the responsibility o f procurement entities. This will limit ex-ante interventions that are not necessarily focused on ensuring compliance with legal requirements (e.g. decisions on large procurement). CGR has proposed an amendment to the L C A that limits its interventions in public tendering, where the most serious controversies arise regarding awards. To maximize this focus, it i s particularly important to adopt consistent thresholds for public competitive bidding. These thresholds should not be based simply on the budget amount allocated but should instead include a risk analysis on the method applied, the value o f the contract, and the capacity o f the local industry. All o f these considerations should be included in a matrix that will provide the criteria that will be used to identify the most cost effective procurement method to use. 17. Strengthening o f the Normative Function and Policy Oversight. It i s particularly important to create a normative entity with the resources, mandate, and the ability to take a leadership position in the development and implementation o f an integral strategic vision for the public procurement system. That entity should promote best practices in the areas o f planning, implementation, and performance monitoring to ensure consistent compliance o f procurement units with public procurement and guarantee that objectives are met. The Normative Entity could facilitate all procurement activities conducted in the Proveedurias within all public institutions by regulating detailed procedures, planning, and procurement monitoring and improving the registry o f suppliers and contractors. This registry should be a source o f unified information but its use need not be o f a mandatory use. The normative agency could provide other types o f support, including the development o f standard bidding documents for goods, works and services in addition to basic performance indicators focused on the efficiency o f transactions and cost-effectiveness. A possibility could be to strengthen the DGABCA, whose mandate is consistent with the support tasks described above. However, this institution still lacks the resources and political scope to be widely effective. Another possibility would be to establish an inter-institutional committee that will include the DGABCA, the highest instance in charge o f auditing processes (the CGR), and the most important autonomous entities. The mandate in this effort will be to identify the most effective towards improvement o f the key aspects o f the system in order to make it more efficient. For instance, some o f these aspects could include the CostaRica CPAR xi improvement o f the registry, procurement planning and procedures for bid evaluation and contract awards. 18. To implement the second phase o f COMPRARED. The objective i s to strengthen the system development by expanding its current functions. COMPRARED should have the capacity to capture accurate information on the current procurement amounts and include a complete range o f relevant market information. If it is able to include all government procurement, COMPRARED could become a key instrument for the government and could help to increase transparency and efficiency. This would require that all entities that are not currently included inCOMPRARED must adopt this system as a tool for electronic procurement. This will in turn facilitate the integration o f all existing information and the monitoring systems that are currently dispersed throughout other entities. If other entities are included in COMPRARED, the Government will need to consider the implications- in both the short and long term- o f using an e-GP based on a financial management system (SIGAF), whose coverage is limited to only 6% o f public procurement. Additionally, the e-GP coding system should be reexamined given that it falls short o f international standards (initially based on the UNCPCS but which utilizes codes to identify spending categories according to the Government's budget). This could have a positive impact on the opening o f the system and compliance with Free Trade Agreements, particularly the DR-CAFTA. It i s important to establish a difference between the functions of a procurement coding system and those associated with a financial management system. 19. To give priority to efforts to improve the efficiency o f public procurement by focusing first on the Autonomous Entities. Given that these institutions use the majority o f the public procurement budget, any improvement in their practices and methods will have a positive impact on the system's results. Findings indicate that these institutions have different practices and capacities. It would be recommendable to initiate an in-depth institutional evaluation o f the Social Security Office, the Costarrican Electricity Company (ICE) and the Petroleum Refinery given that these entities account for the majority o f procurement spending. These evaluations should identify best practices (in terms o f procurement planning, management cycle and control) that could serve as a model for development o f tools and practices and replicated throughout public administration. For example, it would be worthwhile to examine the humanresource policies and the training programs developed by ICE. These institutional evaluations should help identify weaknesses inthe normative and institutional frameworks and serve as a basis upon which to recommendsystem reforms inthe medium andlong terms. CostaRica CPAR 1 CHAPTERI AN OVERVIEW OF THE PUBLIC SECTOR PROCUREMENT SYSTEM I. Countrystatus 1. Costa Rica is a middle income country with a population o f approximately 4 million inhabitants and a GDP per capita o f US$ 4,324. Costa Rica is one o f the most stable countries in Latin America, and its governments have been elected democratically since 1949. The country's economic structure has moved beyond agricultural dependence and agro-industry to an economy o f electronic services, nontraditional agriculture and tourism, particularly ecotourism. An evaluation o f the private sector focused on the relevant aspects o fpublic procurement i s included inAnnex 11. 2. During the majority o f the decade o f the 1 9 9 0 ' ~the country enjoyed, in ~ macroeconomic terms, average economic growth o f approximately 5% o f the GDP. At the endo f the decade, however, real growth decreased to a rate o f 2% (2000-2002). Although growth in 2004 was higher than predicted (close to 4%), due primarily to high growth in exports, vulnerabilities remain. The fiscal deficit remained around 5% o f the GDP, and the public debt at the end o f the year was 53% o fthe GDP. 3. The current administration launched an Economic Recuperation Plan in 2004 in consensus with political actors and civil society. The principal objectives o f the Plan are to achieve an increase in economic growth and poverty reduction by decreasing fiscal debt and providing increased support to tourism, agricultural and small andmedium businesses. Inthe short term, the government's efforts are centered on two key objectives: a) fiscal reform and b) the free trade agreement (DR-CAFTA). 4. Tax reform has also been proposed as a means to attack fiscal deficit. Its objectives are to modernize the system, eliminate exonerations, improve equity and increase the GDP by 2% through increased collection. The government is placing considerable emphasis on demonstrating its commitment to efficiency, effectiveness, and transparency in the use of tax money. 5. The start-up o f the DR-CAFTA will require significant commitment from the government, which will assume the responsibility of promoting measures geared towards modernizing the state in key areas. This effort will involve national, provincial, municipal levels and autonomous entities and state enterprises. In public procurement, an adequate implementation o f the DR-CAFTA will represent an opportunity for the government to continue modernizing, deepening andconsolidating the reforms advanced to date. CostaRica CPAR 2 11. The PublicBudgetandGovernmentProcurement1 6. Government agencies (central and adjoined dependencies, parastatal and local governments)utilize the Procurement Law (LCA) to procure goods and services and contract works through available capacity at each agency. The LCA and its Regulations (RCLA) apply to all procurement in the public sector that i s financed with budget resources. 7. Unlike other countries in Central America, multilateral and bilateral cooperation agencies play only a small role in public investment in Costa Rica. Consequently, the Costa Rican procurement system, with the exception of some specific programs, is not subject to the procurement norms and procedures required by these agencies, and are not obliged to use project executing units. 8. Approximately 95% o f the public budget for procurement i s executed by the Central Government and autonomous institutions. The Executive Branch i s divided into the Central Government (Ministries and adjoined dependencies for a total of 75 institutions), Autonomous Institutions (11 decentralized entities), the Municipalities, State Businesses and other institutions (Le., BCCR, BCR, BNCR, BCAC, Official Paper, SNET). 9. The public budget allocated to publicprocurement hasbeen stable inCostaRica. In the three-year period from 2003-2005, the average volume for procurement of goods, non- personal services2 and public works in Costa Rica was US3,687,000.3 This amount represented a significant portion of the total expenses budgeted by the State (77%), and reflects an increase of barely 3.6% in comparison with the amount budgeted during the years from 2001-2003.4 The following chart shows the amount budgeted for procurement inthe three year period from 2003-2005. These statistics are basedon budgetsand not on actual spending. The CPARteam, in ajoint effort with the team ofthe FinancialAssessment andAccountabilityAssessment Report in the Public Sector (CFAA) analyzed in parallel the efforts for the modernization of budget, accounting, treasury, public credit, and human resources management systems through the Integrated Financial and Administrative Management Information System (SIGAF). More specifically, the teams examinedthe following aspects of the regulatory and institutionalframework and responsibilityfor public spending: (i)budget preparation, monitoring, and execution; and (ii)the SIGAF with regards to public procurement and contract management functions. Nevertheless, in order to maintain thematic consistency, the CPAR team differentiated between the specific analysis and the recommendations in financial management areas, including the effective operation of the CGR, which is referred to extensively in the CFAA. See CFAA, June of2005, WB-IDB. Non-personalservices (Servicios No Personales) are servicesnot remuneratedas civil servantsalaries. This figure takes into accountthe amounts budgetedby public institutions at the outset of each year due to unavailabilityof a system capable of compilinginformationrelatedto budget effectively executedby each ovenmentinstitution. 'To calculate the figures in the charts, the average annual interbankexchange rate for buyingand selling o f the CentralBank of CostaRicawas usedalongwith governmentdataprovidedby the Ministryof Finance. CostaRica CPAR 3 Grrifico1 SectorPliblico:Gasto presupuestadopara adquisicibnde Bienes y Servicios no personales 5.000 w3 4.000 - 2 U 0 3.000 -E a 2.000 1.000 2001-2003 2003-2005 Fuente: Contraloria Genemlde la Replihlicade CoslaRica 10. The average expenditure budgeted for procurement o f works, goods and non- personal services has represented slightly more than 20% of the national GDP for the last five yearsY5which is roughly equivalent to the amounts registered for the manufacturing sector and around three times that observed for farming and animal husbandry. Chart 2 shows the importance o f this item as a percentage o f GDP. Grrifico2 SectorPliblico:Gasto presupuestadopara adquisicibnde Bienes y Servicios como pomentaje delPIB 100% 80% 60% 40% 20% 0Yo 2001-2003 2003-2005 Fuenle: Contraloria Generalde la Replibhcay Banco Centralde Costa Rica 11. Inthe same sense, if the expense budget for the procurement of goods and non- personal services i s analyzed as a percentage o f the national budget for the period o f 2003- 2005, it i s evident that 77% o f the total amount budgeted for the public sector, including decentralized entities, i s destinedto the purchase o f goods and non-personal and services. A brief analysis o f the expenditures of a few institutions andthe amounts contractedby institutionalized procurement units indicates that public sector procurement represents only 6-7% o f the GDP. CostaRica CPAR 4 Gldfico 3 Sector Piiblico: Gasto para adquisici6n de Bienes y Servicios como porcentaje del Presupuesto Nacional(2003-2005) Fuente Contraloria General de la Repiiblrcay Mrnisterro de Hacienda 12. The importance of each public institution within the percentage of public procurement varies. Graph 4 shows that 92% o f the purchases inthe public sector are made by decentralized agencies, 6% by central administration and only 2% are conducted by municipalities or local governments. Gldfico 4 Sector Piiblico: Distribucion del Gasto para adquisicidn de Bienes y Servicios, portip de entidad (2003-2005) 6Yo 92 Admlnistracdn Central Entidades descentralmdas Fuenre Coniralada General de la Republica Gobiernos locales 111. Budget Classificationand the Profileof Public Procurement 13. Every year, the Controller General o f the Republic establishes the financial limits upon which each o f the procurement methods provided in the Procurement Law (LCA) i s to be applied. To this end, entities are grouped into strata according to the budget amounts each entity has been assigned by indicating the minimum and maximum thresholds amounts for use o f each method according to stratum. According to the stipulations set forth, the Controller General's Office, and not the respective authorities o f each entity, must resolve appeals inbiddingprocesses where the estimated contract price exceeds the threshold above a pre-established limit6 The latest up-date published by the Controller General's Office was published in the Official Paper L a GacetaNo 34, dated on Feb. 17, 2005. CostaRica CPAR 5 14. This threshold-based methodology is not applied in a uniformly manner. Each institution, depending on the stratum inwhich it is found, has its own ranges and maximum amounts, which are utilized to determine the last instance o f the procedure applicable to each ~ontract.~ The categorization of entities into 10 ranks is conducted by qualifying the institutions from the letters A to J according to the budget level assigned to each. 15. Category A includes all entities whose budget for procurement o f goods and services exceeds US$89 million: the Social Security Office o f Costa Rica (CCSS), the National Company o f Energy and Light (CNFL), the National Highway Council (CONAVI), the National Institute o f Insurance (INS), the Costa Rican Institute o f Electricity (ICE) and the Costa Rican Petroleum Refinery (RECOPE). The Costa Rican Instituteof Water and Sewage Systems belongto category C. 16. The following pie chart shows that six institutions absorb approximately three fourths (74.8%) o f the procurement budget o f the public sector. The remaining 25% o f the State Apparatus's procurement i s executed by entities or institutions whose budgets are lower thanthis amount. All institutions whose procurement budgets for goods and services falls below US$300,000 a year are placed inthe H, I, and J strata. 17. Only a few institutions are located in the B stratum with procurement budgets in excess o f US$60 million but less than US$89 million, including the National Bank o f Costa Rica (BNCR), The Bank o f Costa Rica (BCR) and the Bank o f the People and Communal Development (BPDC). All together, the 9 institutions located the A and B strata consume almost 79% o f the total budget for procurement o f goods and services in 'According to this methodology, if the contract amount requires a competitive tendering process, another procurement procedure will need to be followed ina government institution whose budget is larger. CostaRica CPAR 6 the country. It is important to point out that all these entities correspond to decentralized institutionsthat are not regulated by the central administration. 18. Some o f the 9 institutions inquestion account for a significantly higher percentage o f procurement o f goods. As shown in pie chart 6, almost 70% o f the procurement for goods and services conducted by businesses whose budget exceeds US$ 60 million are absorbed by two institutions: the Costa Rican Petroleum Refinery (RECOPE) and the Costa Rican Institute o f Electricity (ICE). If we add to these two institutions the Costa Rican Social Security Office (CCSS), we have three institutions that consume more than 63% o f the country's total budget for procurement o f non-personal goods and services. GAfico 6 Sector Mblico: Distribucihdel Gasto en adquisicidn de Bienes y Servicios de 10s estratos A y B,por entidad(2003-2005) Fuente: Contraloria General de la Repiblrca 19. Information on the budget data provided at the outset o f each fiscal year by public institutions for procurement o f goods and services provides the best possible estimate o f the public procurement universe in Costa Rica. As was mentioned earlier inthe report, no system currently exists in the country capable o f integrating all public institutions, including the central government, decentralized institutions and municipalities and generating real statistics on who procures what, how, how much and from whom i s procured. The Electronic Government Procurement System (COMPRARED) has the capacity to make available this kind o f data to all the institutions in the system. Nevertheless, this system incorporates central government agencies only which account currently for only 6% o f total procurement budget.' 20. The country lacks an adequate statistically-based mechanism that allows for the systematic, annual determination o f which types o f procurement procedures are the most utilized by public institutions when conducting procurement of goods and non-personal services. There exist a few isolated reports only, prepared by the Controller General's Office that provide interesting conclusions to this regards. Top management of COMPRAREDhave indicated that in addition to central government institutions, the Supreme Tribunal o f Elections is also incorporated and it is hopedthat more institutions will be included in the future. CostaRica CPAR 7 CHAPTER I1 THE LEGAL FRAMEWORK AND ITSAPPLICATIONS I. LegalFramework 21. The legal basis o f public procurement in Costa Rica can be found inArticle 182 o f the Political Constitution, the Procurement Law No. 7494 (LCA) and its Regulations (RLCA), the General Law o f Work Concessions for Public Services No. 7762, the General Law o f Public Administration No. 6227 and the Organic Law o f the Controller General o f the Republic No.7428 and the Law on Financial Management and Public BudgetsNo.8131 and its Regulations. 22. Some o f the general features o f the system are: L C A also applies to procurement that i s conducted by autonomous and decentralized entities. L C A does not apply to the agreements entered into with international organizations. In practice however, this depends on different interpretations. Contracts that are for tax exemption purposes or which require the use o f public services or the obtention o f natural wealth or resources involving state property should be authorized by the Legislative Assembly. L C A promotes, as a fundamental ground,, the principles o f efficiency, free competition andpublicity. The L C A also establishes distinct methods for public contracting. The modality used depends on the nature o f contracting, the classification stratum o f the procurement entity, and the amount stipulated. 23. Principally, the following methods are used: (i) Bidding, (ii) Bidding Public Public internationally advertised, (iii)Biddingby registry, and (iv) Restricted Bidding. The LCA also contemplates the same procedures for procurement o f non-consulting services and consultancy. The exemption procedures (direct contracting) are enumerated in article 2 o f the LCA. The RLCA provides little information on the procedures to follow inthese cases. Therefore, the Controller General's Office, through jurisprudence, provides a detailed explanationo fthe procedures to be followed inthese exemption cases 24. Procurement o f public works, services and consultancy i s conducted through the methods described above according to the amount and type o f technical or professional services and whether these are offered by individual or firms. The government entities have the obligation to submit a quarterly report to the Controller General's Office. This report provides information on procurement and contracting activities during this period (Le. the procurement procedures started, acts to award contracts, the contractor's qualification, the object and amount o f the contracts, the budget line item to which the expense is assigned, and other data o f interest). 25. Finally, the L C A stipulates the types o f objections recourse that can be used if an interested party believes that his or her rights have been infringed upon. The L C A contemplates three types o f recourses: (i) objections, (ii)appeals; and (iii)overturning o f CostaRica CPAR 8 decision. The use o f a particular type o f recourse will depend on the issue, time involved and the body competent to review the case. Once the administrative route has been exhausted, the L C A indicates that the interested party should file in the justice system through a special process before the High Court for Administrative Disputes (Tribunal Superior for Administrative Contentions). 26. On the institutional front, L C A indicates that the National Procurement Office (Proveeduria Nacional) is the technical and consulting body o f the Ministry o f Finance responsible for: (i)procedures related to all stages o f procurement conducted by the Executive Branch that are not assigned to institutionalized procurement units; (ii) to provide guidance to public and private parties regarding administrative contracting, and (iii)evaluate procurement policies. Additionally, L C A establishes the creation o f Institutionalized ProcurementUnits, introduces the possibility o f utilizing electronic means for procurement, stipulates the creation o f a Supplier Registry, mandates that each institution must publish its procurement plan in the Official Gazette, and introduces the modality o f reverse auction as a procurement method. 11. Analysis of ProceduresandPracticesinthe Implementationof the LCA 27. Procedures at the organizational level. The L C A deconcentrates management o f procurement inthe ministries and assigns responsibility for policy and system supervision to the DGABCA and the CGR. Studies conducted by CGR indicate that no integral vision o f the procurement process o f public sector institutions currently exists. A weakness inthe procurement system in Costa Rica lies in the considerable disarticulation that exists between the requirements established in these norms and the application procedures developed by the entities in charge o f procurement even when said procedures are not in conflict with the L C A stipulations. In general, there i s no integrated system for public procurement that captures strategic information for decision making. For example, there are few procedures and operations manuals that explain how the obligations and principles contained inthe L C A and its regulations are applied within each organizational structure at an administrative level. Additionally, there are no guidelines that determine individual and organizational functions. Many o f the current procedures have been developed more as a result o f practices and habits than as a consequence o f the use o f a coherent and consistent instructionmanual. 28. Excessive use of fractioning and direct contracting. A weakness that arises from the lack o f uniform instruments for procurement is the fractioning o f contracts (which leads to the use o f non-public tendering procedures such as procurement by quotation) as well as direct contracting. Despite the fact that the L C A indicates that direct contracting should be used as an exception, it constitutes, according to studies conducted by CGR, a common procurement practice in many institutions. Although direct contracting may be backed by current norms, it i s important to remember that the excessive use o f this modality may result in fiactionization as a means to avoid more complex tendering processes that have more requirements and formalities. Fragmentation directly affects the institution given that entities that procure insmall amounts are generally unable to achieve better prices and take advantage o f the scale economies that are associated with large CostaRica CPAR 9 volume procurement. Additionally, abuse in direct contracting procedures leads to significant administrative burden because each procurement action i s executed by an independent procedure. 29. Procurement Planning. All procurement requests drawn up within each entity are included in the Annual Operating Plan, which i s in turn included in the Annual Procurement Plan. Inboth cases, the plans must be published timely inthe Official Paper. Nevertheless, there are no standardized formats for goods requisitons or Procurement Plans. Procurement reports are presented directly to DGABCA or the Controller General's office. Public sector entities in Costa Rica are grouped in strata according to the budget amounts assigned to each and each stratum has set minimum and maximum amounts for the use o f each procurement method (Public Bidding, Bidding by Registry, Restricted Bidding and Direct Contracting) as well as the threshold amount above which bidder appeals must be handled by CGR. CGR sets limits for each entity's procurement. If contracting amounts exceed this threshold, authorization must be secured prior to the procurement process. 30. In this way, a contract whose estimated price indicate that it should be tendered through National Competitive Bidding for a specific institution could be legally contracted through Bidding by Registry in another entity with a larger budget. It is clear that the methodologies included in the L C A are not applied uniformly to threshold amounts established throughout the public sector. Instead, each institution uses its own range to determine the methodology applicable to each contract. 31. This categorization o f entities within 10ranges (from A with the largest budgetto J with the smallest budget) fails to incorporate an analysis o f procurement capacity and is based solely on budget levels instead. N o aggregate limits for the use o f less formal methodologies are contemplated to prevent procurement fractionization, which, although considered an unacceptable practice by the LCA, i s difficult to detect. As such, it is surprisingthat in 2003, ICE, which initiates few processes for significant amounts due to the nature o f its contracting, has executed more than 25% o f its budget through Direct Contracting. 32. Official merchandise catalogue. This is the official instrument that normalizes goods and services. It contains a basic description o f merchandise and services to facilitate procurement and adequate storage. The Institutionalized Procurement Units o f the Central Government Administration are obligated to use this catalogue and its coding system for procurement requests or requirements. The Merchandise Catalogue follows, in principle, the United Nation's Central Product Classification System (UNCPCS), and consists o f a coding system (i.e. "class," sub-class," and "number") and a description o f the most important characteristics o f the merchandise and services. The "class" consists o f the number assigned in the budget to the sub-item as defined in the classification system for National Budget Expenses, which groups goods and services according to type. According to the DGABCA, the evolution o f this catalogue differs from the United Nation's catalogue to reflect the uses, particularities, and necessities o f the public sector in Costa Rica. As such, international standards are not necessarily applied. This initiative needs to Costa Rica CPAR 10 be analyzed to ensure that the country fulfills its obligations under the Free Trade Agreement. 33. Tendering Notices. InCosta Rica, the only mandatory biding advertisement i s the Procurement Notice, which i s publishedinthe Official Paper "La Gaceta." The publication process takes 8 days. Ads are also placed in the national media and occasionally in international sources although not obliged by law. This practice i s most common inproject executionunits that have multilateral financing and will eventually be incorporated into the institutionalized procurement units o f each entity. Inthe case o f the central government, in addition to publication in L a Gaceta, all tendering and contracting notices are published in COMPRARED. Autonomous entities do not utilize COMPRARED and most instead rely on their institutional portals. 34. Registry and qualification of suppliers. According to the LCA, the Institutionalized Procurement Units are competent to keep a supplier registry o f suppliers and contractors that are interested in entering into contracts with the administration. The call for register is made annually. Suppliers accredit their information (individual or firms, nationality, powers o f representatives, etc.) with these registries so that the Institution can categorize the business. The "Regulation for the Utilization of a Supplier Registry" (Decree No. 25113-H), regulates supplier participation in the registry by organizing the computerization o f the administrative procurement process, up-dating requirements and supplier characteristics and facilitating decision making regarding future procurement opportunities. 35. This registry provides an overall view o f the supplier given that it includes not only the information described above but also any "Resolution to Sanction" that has been applied. This i s relevant data given that the Institutionalized Procurement Units must send reports on sanctions to the National Procurement Office (Proveeduria Nacional) to supplement the information requiredby the Registry that i s in charge o f coordinating with CGR. 36. Registration with the National Procurement Office is conducted easily and quickly by filling out an "Inscription Format." The parameters considered in the supplier qualification process are not specified inthe L C A or inits Regulations and vary according to the nature of the contract. Ingeneral, there are two factors o f importance: the volume o f business and the number of years o f experience. As such, the Registry guarantees neither the adequate selection o f potential suppliers nor the uniformity o f selection criteria amongst procurement agencies. 37. The international suppliers can register on-line as long as no national or international norms are vulnerated. The National Procurement Office is in charge o f maintaining the information registry o f suppliers and is responsible for the elaboration and management of the Official Merchandise Catalogue. 38. The DGBABCA, like each institutional procurement unit, has its own Supplier Registry and no information o f any kind i s exchanged between registries. In any case, autonomous and central registries in Costa Rica are used more as a source o f contacts than CostaRica CPAR 11 as certifiers o f capacity. The L C A indicates that suppliers must be registered if they wish to enter into contracts with the state o f Costa Rica; nevertheless, tenders submitted by enterprises or individuals that are not registered are not disqualified from the tendering process. Registration is permitted during the evaluation process and even posteriori o f the contract awardand prior to contract signing. 39. It is also important to note that no mechanisms exist to register the commitments assumed by the contractors at the time they are made. As such, the information in the registries indicates historical as opposed to residual or available capacity whenthe supplier i s invitedto submit a quote. 40. Procurement documents. There are no standardized bidding documents. In general, the procurement units have developed their own models, which contain the minimumrequirements (general contracting conditions, technical specifications and terms o f reference) to prepare quotes. Consequently, administrative practices vary from institution to institution, which impedes supplier participation intendering procedures. 41. Consultation and objections to bidding documents. The L C A provides that potential suppliers must lodge any complaints regarding the bidding documents's content within 10 working days. These objections must be presented to the Legal Section of each entity (Objection before the Administration, for Restricted Bidding) or before the CGR (Objection before the CGR for Public Competitive Bidding and Biiding by Registry) depending on the estimated price o f each contract. The CGR has 10 working days to resolve the complaint, period during which the procurement process is suspended. There i s evidence that certain bidders make inappropriate use of this prerogative, which has prompted the CGR to present a "recurring issue bill" to discourage this practice and punish those that incur in inappropriate conduct. Inthe interim, CGR has made a compilation o f the legal resolutions o f the cases that most frequently arise in order to make immediate pronouncements based on similar past cases. 42. Reception and opening of tenders. The deadlines for preparing and presenting tenders depend on the contracting methods usedand the nature o f the contract. The public procedures (Public Competitive Bidding and Bidding by Registry) should meet the following deadlines as set by LCA: Construction or Concession o f Public Works (normally Public Bidding): 25 working days Procurement o f imported supplies (normally International Public Bidding): 20 working days and Procurement o f market goods (Public Bidding or Bidding by Registry): 10 working days. 43. The opening o ftenders is a public act that is open to bothrepresentatives of bidders and the general public. Access to information on the bids is also guaranteed, and available information can be photocopied by any interested party. The bids are read out loud and minutes are kept o fthe opening; bids are not evaluated during the opening process. CostaRica CPAR 12 44. Evaluation of bids and awardingof contracts. Evaluation Commissions are set up butthe formalities o fthe process depend on each entity.Nevertheless, the law requires the presence o f the following: the Institutionalized Procurement Unit's Representative or Provider, the Head o f the Administrative Unitmakingthe request, the Legal Advisor, the Head Officer and any technical specialists required. The Regulation o f Institutional Procurement Units o f Central Administration stipulates the members o fthe Commission. 45. The evaluation parameters are explicitly described in the specification sheets. In general, the parameters are clear and the criterion is basically passho pass. Contracts are awarded to the bidthat is most economically advantageous to the procurer; inother words, the criterion i s which tender i s lowest. The Contract Award Notice i s published in L a Gaceta, COMPRARED and other media ifnecessary. 46. Contract awards, resources and appeals. Once bid evaluation is concluded, the contract i s awarded and a period o f 10 working days is established so that tenderers can file complaints (appeals) concerning the contract award prior to Legalization before the CGR. The Table above shows that the amount o f the contract determines which measures apply. Once 10 working days have passed, the right to appeal i s lost. Inthe strictest sense, the bidders can present an Appeal to Revoke (presented before the Legal Section o f the contracting entity) or an Appeal before the CGR. As i s evident inthe Table, the amount o f the contract determines which measures apply. Ingeneral, appeals are presented at Public Biddingand Bidding by Registry while appeals to revoke are more common inRestricted BiddingandDirect Contracting. 47. If an appeal is presented before the CGR, a period of 10 working days is set to decide ifthe appeal i s accepted or rejected (inthe year 2003, 52% o f the appeals received were rejected) and another 40 working days are stipulated to resolve the matter. This period may be extended by 20 days. 48. Legalization before the CGR. Once the contract has been awarded and signed and ifthe amount so requires, the file is sentto CGR, whichhasno morethan30working days to expedite a signature. If no decision i s made within the time period mentioned, positive silence applies (meaning the contract is considered approved). 111. ConclusionsandRecommendations 49. Reform of the Law. Although the legal framework for public procurement in Costa Rica appears modern and comprehensive, it is clear that improvements can be made. Since the approval o f the LCA, considerable delays inprocurement and purchasing processes have arisen primarilydue to differences ininterpretation o fthis law. 50. This report has identified the weaknesses inthe legal systemthat require attention: The lack o f rules to regulate or cover the gaps o f the L C A and which provide uniform normative criteria for both central and decentralized levels. The needto simplify contract modalities. CostaRica CPAR 13 The needto develop a specific regime for contracting services and consultancy. The need to simplify and rationalize the supervision and approval stages that draw out procedures unnecessarily. The need to reduce the time it takes for institutions to make decisions during different stages inthe process. Legal recourse procedures are oriented to the rights o f bidders and do not take administrative needs for efficiency and effectiveness into account. 51. Given the priorities o f the Legislative Assembly, the effort to improve the L C A could include the issuance o f regulations and directives by the Executive Branch in addition to the development and distribution o f standardized procurement documents and tools. 52. Registry. Although the Registry is not restricted(it can accept tenders from bidders that have not been invited to participate), it is still not a very reliable tool and should be unified to serve the whole system. It is important to take into account that one o f the reform articles to the L C A proposedby the CGR stipulates that only the tenders placed by bidders invited to participate in the process should be evaluated. As such, the registry would be preponderant and restrictive. The registry procedures for contractors and providers are complex and suffer from a lack o f coordination between agencies. The current norm indicates that bidders do not have to be registered to participate intenders. As such, it may be preferable to use the registry as a source o f information and avoid making registration mandatory for the sake o f fulfilling international practices following the Banks' procurementpolicies. 53. Standardizedprocedures. Inorder to guarantee increased efficiency inprocedures, efforts must be made to make contracting practices more uniform, beginningwith the use o f standardized documents. CostaRica CPAR 14 CHAPTER I11 INSTITUTIONAL FRAMEWORK I. TheNormativeFunctionforCentralGovernmentProcurement(DGABCA) 54. Central Government procurement (ministries and adjoined entities) i s conducted under the supervision and direction o f the General Office for the Administration o f Administrative Goods and Services (DGABCA), which i s a dependency o f the Ministry o f Finance. The DGABCA replaced the former National Procurement Office, but its functions are substantially different from those o f its predecessor. 55. The DGABCA, according to the stipulations o f the Administrative Financial Law, Law No. 8131, i s the oversight body o f the administrative system for goods and administrative procurement and exercises a normative role (guidelines, regulations, policies and information systems). It also supervises central government agencies, which, from 2002 on, are responsible for procuring through institutionalized procurement units. Municipalities also have their own procurement units. 56. The DGABCA has set a strategy for the period between 2002 and 2006 that includes four priority actions: (i)to consolidate the organizational structure o f the Head Office as the supervisory body o f the system and promote the development and organization o f Institutionalized Procurement Units and Areas for the Administration o f Goods and Central Administration; (ii)To drive integrated, efficient and transparent information systems to support administration in the areas o f administrative procurement and Central Administration (COMPRARED, SIGAF, SIBINET); (iii) guarantee that To the system i s equipped with the necessary norms and technical assistance to fulfill the objectives o f and provide direction to the system, guaranteeing the public interest and; (iv) Ensurethe adequate execution o f contracting processes, the storage, distribution or flow o f goods from the institutionalized procurement units and the areas o f administration o f the central administration. The most significant progress has been in the area o f information systems. COMPRARED, whose prime objective i s to propitiate the transparency, efficiency, effectiveness and integration o f procurement management at the State level, was initiated in2001 by the Ministry o f Health. 57. The DGABCA i s also developing a single catalogue o f goods (merchandise catalogue) for the purpose o f typifying and classifying contracting and expenses. For the time being, it i s using the United Nation's nomenclature. Once a single expense classifying system has been developed, the Controller General will ensure that it i s used throughout the public sector, including decentralized agencies. Other initiatives include an up-dating o f the Registry o f Restricted Bidders andthe exchange o f said information with the State Suppliers'. Additionally, all of the annual procurement plans should be published inCOMPRARED. CostaRica CPAR 15 11. The ExternalControlFunction(Controller Generalof the Republic) 58. The Controller General o f the Republic (CGR) o f Costa Rica is a technical entity that aids the Legislative Assembly in the oversight o f all o f the entities and bodies that comprise Public Finance; it is functionally and administratively independent. With regard to procurement, the CGR exercises two controls: Previous Control 59. The CGR has attributions to exercise ex-ante control over the administration o f public finance. Thirty-nine percent (39%) o f CGR's activities correspond to the review and approval o f public finance budgets. The principal functions o f the ex-ante control systemare: Control of budget availability prior to the Administration's decision to contract: the CGR examines and approves or disapproves, either totally or partially, the budgets of entities or bodies belonging to Public Finance. Authorization for contracting: once budget availability has been verified, the CGR gives the go ahead to the procurement plans o f each entity. Inaddition, the CGR must approve any exception to the utilization o fprocurement methods that are different from approved methods, for example inthe case o f direct or emergency contracting. Appeals recourses to object procurement documents: to resolve objections filed by potential bidders to the legalkommercial or technical conditions o f the bidding requirement. Appeals concerning contract awards: once the award has been communicated, the CGR must hear any appeals. The decision taken by the CGR i s final and cannot by redirectedthrough administrative channels. Contract endorsement: the Controller should approve and verify the conformity o f the contracts entered into by the administration withinthe period stipulated, which may not exceed 30 working days. The non-approval o f a contract will impede the legal validity o f the act or contract and its execution will be prohibited and considered null and void. The competences o f the Controller General's Office will not be suspended during the period set for the exercise of the same. Nevertheless, in the case that the Controller fails to resolve or pronounce within the legal period assigned or as established according to regulations regarding appeals to public tendering, the award act will be considered valid and shall stand. Ex-Post Control 60. In addition to the control functions discussed previously, the CGR evaluates financial-administrative transactions through audits o f the entities: Operational: related to operative audits that the CGR conducts to observe procurement entities' compliance with current legislation and To maintain thematic consistency, the CPAR team suggestsreading this section along with the specific areas o f analysis andthe recommendations inthe area o f external control, including those referring to the effective operation o fthe CGR, as elaborated by the CFAA. See CFAA, June o f 2005, WE%-IDB, page 36. Costa Rica CPAR 16 0 Evaluation: analyzes the results o f administrative contract management by prioritizing the state's co-existence criteria. When necessary, The CGR can conduct audits, institute administrative summary or special investigations, can establish policies, dictate regulation, fiscalize internal audits and order external audits o f all bodies inthe areas o f its competence and involving passive subjects within the realm o f Public Finance. 0 Advisory: the CGR, amongst its various functions, must respond to requests for information from parliamentary bodies and private subjects. The rulings pronouncedby the Controller General's Office are binding and irrefutable with the exception o f those related to administrative contracting, which are considered definitive administrative acts. Organization,Resourcesand Performance 61 The CGR distributes its operative functions into three principal divisions: Fiscalization of Operative and Evaluation applications, which is geared towards evaluating the economic and social impact o f the administration o f public resources, the review and approval of public sector budgets, and the review o f budget executionin order to prepare and present periodic reports on the same, execute external audits and investigate complaints; Legal Advisory, mainly responsible for the legal functions o fjustice administration in the CGR's realm o f activities by determining civil and administrative responsibilities relative to the improper conduct o f public employees and claims stemming from administrative contracting; and Institutional Development, which is in charge o f the functions o f supervisory body for internal control and is responsible for a set o f support and operative activities. 62. The FiscalizationDivision executes the majority of CGR's constitutional functions. In 2003, this division executed approximately 50% of CGR's budget. Its operations provide support for budget reviews andapprovals, the review o f budget execution, special studies and audits in general. The legal division and the division for institutional development dedicate a large percentage o f their resources to the clearances o f administrative contracting and corresponding legal issues. These Divisions execute 29% ofthe budget. 63. In 2003, the CGR conducted fiscalization actions for a total amount o f C$13.448.539.5 million, o f which 39% corresponded to ex-ante Control and 61% to ex- post control. In fact, 66% o f the amounts subject to prior control correspond to budget reviews for approval purposes and 34% corresponds to contracting clearances. Inthe case o f ex-post control, 92% o f the values reviewed were related to "Special Studies," (investigation o f complaints and guidance provided to the AL), 6.2% for Operational Audits, and the remaining 0.4% to Financial and Budget Auditing. 64. The controller body conducts process control at three stages: ex-ante, during, and ex-post. Many argue that this control system adversely affects the celerity with which CostaRica CPAR 17 administrative procurement should be conducted. In2004, the CGR fiscalized efforts for a total of C$ 14.444.979,2 million, of which 40% correspondedto ex-ante control and 60% to ex-post control. Additionally, 65% of the amounts examined through ex-ante control correspondedto requests for approval and 35% was relatedto contracting clearances. 65. The CGR's Annual Report for 2003 indicates that more objections were raised regardingthe system for procurement of goods and non-personal services inthat year than in years past. As such, various bills have been presented that seek to grant greater efficiency and efficacy to manageprocurement processes.lo 66. The analysis of CGR's resolutions (as found in the Annual Report) indicates that 311 resolutions on appeals related to administrative contracting were issued in 2003, of which 168 (meaning 54.01%) were ad portas denials. O f these resolutions, 89 were for simple matters related to amounts, ex temporal issues, acts that are considered null and void and acts that nullify a procedure; 65% was associated with cases inwhich the office, within a periodof only 20 days, engagedina legal, technical and/or jurisprudence efforts to reject ad portas without delving further into the matter. 67. The annual report concludes that although the global budget for procurement of goods and services inthe public sector in2003 was $1.361.332,7 (inbillions), interms of appeals, only 10.51% of the same was fiscalized of which 9.39% led to a ruling for an award and 1.12 % were annulled. It is important to note that the total figure for fiscalization in2002 was 12.09% for 2001 and 15.26% for 2001. 68. The aforementioned functions, amongst others, conflict with the equally constitutional functions of ex-post control of public finance resource administration as well as with their attributions to issue norms for said purposes, to carry out investigations of supposed irregular conducts on the part of public employees, and to impose and order sanctions. 111. AutonomousInstitutions 69. Autonomous institutions, like the central government, operate under the precepts of the LCA and its regulations but are financially independent of the DGABCA and utilize their own statutesand internal norms. The institutions inthis category include: The Costa 10 Currently, the Legislative Assembly i s working on various bills related to reforms of the Law of Administrative Procurement, including: File 15555. Law of Reform of articles 16, 32, and 80 second paragraph; 84, 86, 89, 91, 92 section D) of the Law of Administrative ContractingNo7494 of May 02, 1995. This project is scheduled for the Legislative Session as No.48 on the docket. This constitutes the f r s t debate with the affirmative opinion ofthe majority. File 15583. Reforms of the General Law of Administrative Contracting. This Project is in the Commissionof LegalAffairs; it is No.11onthe docket and is inthe investigative stage. File 15716.Reform of the first paragrahand section c) of article 100 of the Law of Administrative Contracting,Law 7494 of May 02, 1995 and the repealof Law 8022 of Sept. 01,2000. CostaRica CPAR 18 Rican Institute of Water and Sewage Systems (AyA), the Social Security Office of Costa Rica (CCSS), the National Council on Production (CNP), the National Company of Energy and Light (CNFL), the Costa Rican Institute of Electricity (ICE), the Costa Rican Institute of Tourism (ICT), the National Institute of Cooperative Development (INFOCOOP), the National Instituteof Insurance (INS), the Institute of Development and Municipal Consultancy (IFAM), the National Institute of Statistics and Census (INEC), The National Institute for Learning (INA), and the Costa Rican Petroleum Refinery (RECOPE). 70. Autonomous institutions have a degree of flexibility to manage their budgets and internal administration areas (including personnel) but their objectives and organization are different. Several of these institutions receive significant funds from the government; some are earmarkedto receive special taxes; and yet others are financed primarily with money generated from the services they offer. Due to the public nature of autonomous institutions, the government exercises its control function in the areas of (i) investment, debt and budget; (ii) and prices and (iii) fees procurement and auditing. At least six agencies are responsible for supervising and controlling autonomous entities, including the Ministry of Finance, the MIDEPLAN, the Central Bank, the Budget Authority, the Controller General's office and the Superintendenceof Public Services. 71. Inorder to deepenthe analysis of organizational aspects related to procurement, 3 institutions were examined: The Costa Rican Social Security Office (CCSS), the Costa Rican Institute of Electricity (ICE), and the National Institute of Aqueducts and Sewage Systems (Aya), which together with RECOPE represent approximately one third of the state budget for expenses and procurement. The study confirmed the existence of a new challenge for the procurement sector: to review and modernize policies, procedures and ensure the best possible use of informationtechnology. 72. Organization and structure. All three institutions tend to centralize procurement according to the framework provided by the LCA, its regulations, the resolutions of the Controller General's Office, the rulings of the FourthCourt and the internal regulations of each institution. Contracting with these institutions i s open but i s complex and costly for tenderers. 73. With the exception of the LCA and the role of the Controller General' Office, there i s no common framework that ensures that autonomous institutions operate coherently when engaging inpublic procurement and contracting. As such, tenderers must deal with the fact that differentstateinstitutions requiredifferentdocumentation whenprocuringthe same product or service. 74. Processes. Procurement procedures for goods or services are governed by the financial thresholds set for the specific category or stratum to which the responsible agency is assigned and are not subjected to a risk analysis of the procurement item or project. An agency's authority to contract is determinedby the stratum assignedaccording to its procurement budget for goods and non-personal services and is not conditioned by the agency's institutional capacity assessment to procure or contract. CostaRica CPAR 19 75. Institutions have the autonomy to organize tendering if and only if they fulfill the L C A and its regulations. As such, each institution issues its own internal regulations to assign responsibilities for different functions, to identify and define the procurement item and prepare andapprove biddingdocuments (Bases), conduct the biddingprocess, evaluate bids and recommend a course o f action for awards, and award and sign the contract once it has be cleared by the Controller General's Office, where applicable. 76. These internal regulations often contribute to delays and inefficient decisions. A seeminglyendless number o f individuals and commissions often participate, which makes accountability difficult to determine. For example, CCSS's internal process for simplified procurement o f medicines includes 19 steps that must be followed over 169 days beginning with the date the purchase order was issued to the moment that the product enters the storage facility. 77. Policies. The procurement policy, similar to other policies in the public sector, is focused on preventing corruption and ensuring that public employees act with probity. This policy, however, is based more on detailed regulation and an excess o f controls than on promoting ethics values or virtues. The excess o f regulation and controls threatens efficiency given that it imposes significant transaction costs. It also limits the flexibility needed to achieve better options in terms o f price and quality and hampers the achievement o f certain social objectives. The public employees' culture seems to be centered on not taking risks, following the rules and resisting change. All o f the aforementioned makes for a system that i s complex, cumbersome and costly to administrate. 78. A brief analysis by the institutions indicates that the majority o f transactions correspond to large volume, low-value items that demand a high proportion o f administrative resources despite the fact that their value i s minimal inrelation to the total procurement expense. 79. For example, the CCSS, conducts C$33,200 million in procurement operations in the central ambit (excluding the procurement o f medicines regulated in Law 6914), o f which 18-20% represent 60% of the number o f transactions. In a similar fashion, 40% o f procurement expense corresponds to 90% o f the number o f transactions and in ICE, 86% o f the transactions consume only 12% o f procurement spending. 80. Performance indicators. The main indicator that the institutions utilize to measure efficiency in procurement processes i s the time that transpires between the submission o f a procurement request and the issuance o f a procurement order. Nevertheless, this indicator is extremely variable even withinthe same institution. This is due to the fact that the time dedicated to reviewing the application depends on the complexity of the procurement request. For this reason, international practice defines this indicator as the period that transpires between the publication of a tender notification and the signing o f a contract or the issuance o f a procurement order. The step-by-step breakdown o f process CostaRica CPAR 20 duration shown inthe following table indicates that the averagenumber of days it takes to analyze and award tenders is significant. 1 AVERAGE DURATIONOFBIDDINGPROCEDURESINDAYS INSTIT PLANNI SUBM EVALU DRAFT SENT ISSUI UTION NG ISSIO ATION ING OF FOR CGR NG PHASE N OF AND CONTR APPRO CLEA OF BIDS AWAR ACTS VAL RAN P.O. D CE AYA 50 47 127 55 16 17 18 ICE 114 53 120 69 32 18 10 416 CCSS 34 50 145 105 21 27 49* DIRECTCONTRACTING EVALU DRAFT SENT I I S S U I T 0 I MISS1 ATION ING OF FOR CGR ING TA AND CONT APPROV CLEA OF L AWAR RACTS AL RANC P.O. BIDS D E pAYA 22 4 12 NA NA NA 8 46 12 NA NA NA 20 87 51 NA NA NA 23 142 *includes reception 81. The majority of the institutions conduct periodic internal evaluations utilizing type methodologies (FODA- Strengths, Opportunities, Weaknesses and Threats), but these evaluations are limited to processes geared towards complying with the LCA. These evaluations could be exploited to identify best practices and develop a model for other institutions. 82. Human Resources. The three institutions studiedare conscious of the importance that technical expertise and ethics play in procurement staffs performance and conduct and are aware of the importance of maintaining their motivation. This means that institutions must maintain adequate training programs for their employees and management teams, which must be accompanied by policies aimed at ensuring personnel's welfare. 83. Inthis respect, boththe CCSS and the ICE, which are not part of the civil service, have a degree of flexibility to contract personnel. The ICE'S initiative to design and implement an administrative procurement program made up of 13 training modules is noteworthy. This program lasts approximately a year and trains employees from the National Procurement Office, administrative assistants at the middle management levels, CostaRica CPAR 21 attorneys from the Administrative Contracting Office and employees of the Auditing Office. Currently, close to 30 public employees are in the last stages of a master's program in administration with a focus on in administrative contracting offered through an agreementbetweenthe Government o f CostaRicaandthe Universidad Fidelitas. 84. The ICE has also focused on providing incentives to staff through an outstanding salary and benefitpolicy applied at the public sector level (the average employee salary is the equivalent of approximately US$1,300). It is evident that the individuals involved in administrative contracting are highly committed to conducting processesefficiently. IV. Conclusionsand recommendations 85. Supervisorybody. Although DGBCA's actions are moving inthe right direction, it would be a good idea to establish a consulting supervisory body for the entire public sector to provide leadership and oversee the strategic vision of the contracting system. In order to do this, it will be necessaryto pass legal reforms that will allow the Head Office to fulfill this objective. This body could facilitate the work of institutional procurement units with regard to regulating, reviewing and monitoring the planning and execution of contracts. It could also help design models for standardized tendering documents for goods, works, and services and could contribute to the development of common performance indicators to measure output, effectiveness and costs oftransactions. 86. The creation o f a central government organization responsible for providing strategic direction to the public procurement system and pro high level assistance to all government entities, including autonomous institutions, would allow to reduce the system's fragmentation inthe system which is primarilythe result of the heterogeneity of procurement practices and documents. This organization should not have authority over matters that belong exclusively to the institutions' domain, and instead should focus on promoting best practices in procurement, including the preparation of manuals and standardized documents including staff training and ensuring system integration and coordination. 87. An option would be to strengthenthe DGABCA and widen its range of action. The most significant limitation that DGABCA faces i s that it lacks the support necessary to fulfill its current roles (principally as far as human resources, finance and policy aspects) and the fact that the LCA limits its range of action in the central government. The DGABCA's activities have concentratedprimarily on the development of COMPRARED, which has only been implemented in the central government to date. As such, the autonomous institutions, leaving out tha autonomous institutions which represent as a whole the highest percentage of the budget allocated for public procurement. 88 In order to truly assume its role as a consulting supervisory body for the entire public sector, the DGABCA needs to cover the following areas: Regulatory role: CostaRica CPAR 22 To take on both the leading and supervision roles o f the strategic vision of the global procurement system given that administrative contracting represents an important part o f the budgetto fulfill institutional objectives and goals. To formulate and propose common policies and procedures for the entire public sector. It is necessary to reduce the disadvantages caused by the segmentation o f public purchases in Costa Rica. The DGABCA should take on the initiative to discuss and coordinate with autonomous institutions the policies andprocedures for common use. It should also incorporate best practices within its guidelines and use the potential o f COMPRARED to disseminate information on these initiatives throughout the public sector. To draw up common indicators to measure performance, effectiveness and transaction costs o f Processes. Operational Role: To develop models for standard bidding documents (goods, works and non- consultant services) and documents for requests for proposals from consultant firms by benefiting from the experience o f the Chambers o f Construction, Commerce, Industry, Science and Technology, Consultants and the Federated Association of Engineers and Architects. 0 To collaborate with the institutionalized procurement units in activities aimed to regulate, review and monitor procurement planning and execution. Although the Controller General's Office takes also part o f the responsibility inthis initiative, the goal would be for DGABCA to participate actively in planning and consultancy andthat the CGRwould concentrate on ex-post controls. Although the DGABCA has conducted some training courses since 2002, the majority o f them was for specific purposes and was not part o f a strategic plan for formal training directed at ensuring the certification or accreditation o f staff in charge o f administrative procurement. 0 To have qualified personnel trained in all relevant procurement disciplines to provide effective leadership 89. Another option to consider would be to create a committee for procedure simplification and system modernization comprised o f the DGABCA, the Controller General's Office and the most relevant autonomous entities. The purpose would be to identify measures aimed to make more efficient use o f time and reducing the administrative cost o f registration, identify needs for improvement o f planning schemes andperformance of bid evaluation processes, and contract awards. 90. External control. The Controller General's Office should give consideration to the value added of its technical opinions as it does not seem to have staff with the skills required to effectively assess issues o f different nature related to bid evaluation processes and contract awards. Expert control in specialized areas o f expertise should be left to the technical professionals in each government institution. The Controller General's Office has drafted a proposal for the reform o f the L C A that proposes to exert ex-ante control functions only in public competitive biddings where the chances o f protests associated with complex, higher value transactions to arise is greatest. As such, the thresholds assigned to public biddings, as a procurement method, should be revised for clarity. The CostaRica CPAR 23 setting up o f thresholds for both the procurement method to select and the conditions for prior reviews to perform should lie on the design matrixes based on risk analysis, the public institutions'capacity andthe estimated value o fthe procurement. 91. Although the CGR i s improving its fiscalization system from a technical and technological point o f view, the combined focus on ex-ante/ex-post control should be revisited. The restrictions and conflicts stemming from its legal abilities which require a highpercentage of concentration on ex-ante control andon reviews o f specialized studies dealing with management o f claims, cause delays in bidding processes which otherwise should be considered as part o f primary ex-post control actions. Under current conditions, except for compliance with budget legal requirements, it does not seem appropriate to depend on the efforts o f the Controller's office to lendreliability to accountability actions andtransparency to public administration. 92. The modernization process should be reinforced by adapting the fiscalization system to complement the LOCGR reform process in order to ensure its separation fiom ex-ante control functions and its financial independence to define and approve its budget. This process should also ensure that the system is endowedwiththe human, technical and technological resources to generate predicted results. At the same time, the CGR will benefit from the implementation o f a management control system based on indicators to facilitate supervision o f operating and administrating tasks. This system will constitute a reliable information base upon which CGR can evaluate its performance and be held accountable for its actions. 93. Internal Control. The comments received indicate some weaknesses in the internal audits, whose effectiveness i s impeded by the ex-ante control that the Controller's Office exercises and the emphasis that the respective institution's board o f directors places on the audit itself. If this function is strengthened in the institutions, it will considerably facilitate the role o f the Controller's Office inex-post control. 94. Change in the culture of control. The institutions evaluated have well qualified and educated personnel who should be open to a change in culture based more on principles than on detailed rules. In essence, more trust must be placed in these individuals. A change o f this nature should generate more opportunities to make the procurement system more agile andreduce transaction costs. 95 Strategic Planning. These institutions should consider the benefits that can be reaped from adding low risk and low cost items and should conduct procurement through framework contracts. This could allow for better prices, shorten the time spent by procurement officials on specific tasks and reduce the administrative cost o f payments given that billingwill be reduced. 96 Performance Indicators. The objective o f using indicators is to allow institutions to monitor their behavior inmanagement o f procurement and compare it with that o f other institutions. Inboth cases, it i s important that each institution use the same methodology to ensure the consistency o f comparisons. Another task would be to include the new CostaRica CPAR 24 functions proposed by the DGABCA. It would also be recommendable to develop indicators that permit: i)an analysis of the true transaction costs of procurement; ii) measure the progress made in economizing efforts relative to procurement; and iii)to evaluatethe abilities andbehavior of contractors and supplier. 97. Capacity Development. Although certifications have been granted to staff who participates in training activities provided by DGABCA, it would be a good idea to analyze the possibility of entering into an agreementwith a higher learning institutionfor the purpose of setting up a formal training program in public procurement based on the public sector needs. For example, the agreement with the Fidelitas University could be used as a springboard for a training program for public procurement in the international context that i s similar to those that the World Bank supports inEurope (ILO) and Africa. CostaRica CPAR 25 CHAPTERI V INCENTIVESAND EFFORTSFOR THE PROCUREMENT SYSTEMREFORM 98. Over the last few years new incentives have arisen to strengthen and expand the potential o f the current contracting system. This chapter concentrates on two o f these incentives: contracting through e-procurement and (ii)international agreements on government purchases. I. PublicContractingthroughE-Procurement" 99. Costa Rica has made significant progress in adopting an electronic system for government procurement (e-GP) and the new version that is about to be launched has enormously increased its functionality. Costa Rica has followed best practices to increase transparency and participation in public sector contracting processes. The fact that tenderers can obtain tendering documents at no cost i s a big step inthe right direction. 100. Although there i s one website that publishes information on state contracting, there is a need to increase dissemination and coverage for other entities outside the central government. The Regulation o f the Financial Administration Law o f the Republic and Public Budgets(No. 8131) establishes the obligatory use o f all systems that the DGABCA puts forth for the fulfillment of the objectives o f public administration. COMPRARED, which to date only includes the central government. i s amongst these systems. 101. Based on an analysis o f the country's state o f preparation to develop e-GP derived from a self-evaluation conducted by government employees and the analysis o f experts from the Banks, Costa Rica has made significant progress in adopting best international practices. COMPRARED's main objectives are transparency and efficiency (savings); nevertheless, no quantitative or qualitative goals have been set for these objectives. The new version o f COMPRARED seems to be compatible with the guide map proposed by the IDB andthe W.An in-depthanalysis should be conducted to determine the system's ability to handle operations financed by international institutions. 102. The DGABCA has led COMPRARED's development and operation but fragmentation inthe public sector has led to a situation where several entities have begun to develop their own systems without guidance from the Ministry o f Finance. These systems currently run parallel to COMPRARED. This fragmentation limits COMPRARED's progress and reduces the potential benefits that can be derived from e- GP. 103. DGABCA's plans to introduce digital signatures and certification are a key step in the e-GP development process. This area requires more analysis andthought given that it has implications for the goods and services offered by international suppliers and also affects the fulfillment o f the conditions set by free trade agreements such as the DR- l1 This section is a synthesis o fthe progress report on e-government procurement included inAnnex V. Costa Rica CPAR 26 CAFTA. COMPRARED has adopted the UNSPSC as a basic coding system for goods and services, a decision that is aligned with best international practices. In general, the development of standards is limited, and no policy framework or mechanisms for joint efforts with the government are in place. A registry of suppliers exists, but it is not standardized given that it works in parallel with other non-interconnected registries operatedby a number o f public sector entities. 11. InternationalAgreementson GovernmentProcurement 104. The international treaties to which Costa Rica subscribes represent the second (although frequently ignored) incentive to strengtheningthe contracting system. 105. Currently, Costa Rica is a member of four free trade agreements: CR-Mexico (1994), CR-Republica Dominicana (2002), CR-Chile (2002) y CR-Canada (2004). Additionally, the government is in the process of granting legislative approval for two other agreements: the CR-CARICOM and the Free Trade Agreement between Central America, the United States and the Dominican Republic (DR-CAFTA).12 Of these agreements, DR-CAFTA will have the greatestimpact on contracting i s ~ u e s . ' ~ 106. Chapter 9 of the DR-CAFTA on government purchases aims to determine the assurances that Parties must provide to goods and services suppliers, who are nationals from other member countries of the said agreement, when conducting public procurement processes. Inthis sense, this chapter will facilitate the: (i) consolidation of the different principles and procedures of public procurement at the national level and, (ii)the modernization of all national practices that inone way or another impedethe participation of foreign suppliersingovernment procurement. 107. DR-CAFTA establishes specific obligations for the entities registered on the Costa Rican positive list and accepts the application of only those procedures and laws that are consistent with its requirements. The treaty stipulates the obligation for the Parties to apply the principle of national handling of foreign goods, services, and suppliers from other member countries of the treaty and the process by which the origin of goods will be determined; prohibits the application of special compensatory conditions; and also specifies that no measures relative to customs tariffs or other fees or measures relative to imports, other thanthose measureswhich specifically regulate public procurement will be applied. 108. Another feature o f DR-CAFTA i s its multilateral application nature. The treaty's public procurement provisions treat the merchandise, services and suppliers from other Central American countries or the Dominican Republic inthe same way as those coming from the United States. Regardless, the agreement stipulates different coverage for ''For a more in-depthstudy of the DR-CAFTAresults inother areas, see the ExplanatoryDocumentof the Free Trade Agreement between Central America, the United States and the DominicanRepublic published by the Ministry ofForeignTrade of CostaRicain2004 (also availableat www.comex.go.cr). l3Over the last few years, nearly 50% of Costa Rica's imports and exports have been linked to the US market. Additonally, nearly 60%ofthe direct foreign investmentthat has beenmade inCostaRicaoriginated intheUS. CostaRica CPAR 27 different countries. In the case o f the US, the chapter applies only to the purchases o f public entities covered by the treaty that exceed the established thresholds while the coverage for Central American countries i s much more extensive due to the fact that it does not exclude government entities nor establishes thresholds at all. 109. The DR-CAFTA incorporates specific commitments regarding market access (foreign suppliers o f goods and services should be treated in the same way as national suppliers). The DR-CAFTA's scope i s limited to the entities listed in its tables and includes central, local and decentralized entities wherever national budget funding applies (which primarily affect the health and construction sectors). Unless otherwise specified, the DR-CAFTA covers all the subordinate bodies onthese lists. 110. Nevertheless, the DR-CAFTA incorporates dispositions that establish different coverages for different countries. As such, the treaty sets thresholds to delimit coverage between Central American countries, the Dominican Republic and the US while no thresholds are set for contracting with Central American countries or that conducted between said countries and the Dominican Republic (given that coverage i s more extensive). With regard to the coverage between the United States and each Central American country, the thresholds applicable to Central American countries will be double that o f the thresholds applicable to US entities during the three year period directly following the date on which the treaty comes into effect. After this period, the thresholds will be equalized. 111. The DR-CAFTA's coverage extends to national, provincial and municipal levels and includes autonomous entities and state-run businesses. The applicable thresholds are: US$58.550 for goods and services and US$ US $6.725.000 for construction services at the central government level. US$477.000 for goods and services and US $6.725.000 for construction services at the sub-central government level. US$250.000 for goods and services and US $6.725.000 for construction services for decentralized entities. 112. To determine DR-CAFTA's effects on supplier access, one must analyze the list o f entities covered according to the budgeted expenses for goods and services for public entities in Costa Rica. It i s clear that no thresholds exist for contracting between Central American countries or for dealings between these countries and the Dominican Republic; as such, coverage i s virtually complete. This i s not the case however with the United States, given that the thresholds are set in combination with a positive list focus to determine the entities to which the treaty applies; as such, the real percentage o f contracting covered by the treaty is infact limited. 113. An analysis o f the percentage o f the budget used for the procurement o f goods and services that was included in the coverage with the United States shows that o f the 9 institutions inthe A and B strata, only the ICE and the CCSS are on Costa Rica's positive list. The other seven institutions in these strata, which account for more than 54% o f the CostaRica CPAR 28 budget, are not covered by the treaty with the U S but are contemplated in the agreement with the other countries. 111. Conclusions andRecommendations 114. Strategicplan for a COMPRARED. Despite the fact that important progress has been made, there is currently no integral strategic plan or common vision on the e-Gp model that should be used in Costa Rica and how the model chosen should be implemented. This integral plan should identify, amongst other aspects, the key points necessary to implement successful and sustainable e-GP solutions. The plan must also work to consolidate all o f public sector entities and the autonomous bodies that have yet to be included in a system and which represent the largest share o f the procurement budget inthe country. 115. Amongst other aspects, the strategic plan must take into consideration the following factors, all o f which have the potential to block initiatives: The fragmentation o f e-GP initiatives and the lack o f coordination between the central government and other public sector entities constitute one o f the main risks. COMPRARED currently handles only a fraction o f the total procurement budget. If alternatives and strategies are adopted by different authorities simultaneously, the results may be negative for the government, suppliers and economic development. The lack o f a coordinated strategic plan means that many o f the aspects that will be necessary in subsequent stages o f e-GP development, all o f which entail risk and are complex, will not be implemented. It i s evident that the system lacks planningto guide simultaneous and consolidatedprogress. The adoption o f reverse auctions (gavel auctions) -foreseen for the short term- would encompass only 15% o f the total public procurement for the public sector. Inthe long term, the use o f this mechanism will generate negative impacts for the private sector, sectorial development and prices unless an in-depth knowledge -not yet available- o f the market and supliers' economy behavior i s developed. The use o f digital signatures and certification has yet to be successfully implemented in all o f the existing e-GP systems. This strategy should include an in-depth analysis o f potential risks inorder to avoid makingerrors and incurring unnecessary costs. 116. Consistency between the national normativeframework and the DR-CAFTA. A comparative analysis leads us to the conclusion that total compatibility exists between the regulations established and the legal framework o f Costa Rica as well as the normative dispositions o f the DR-CAFTA. The DR-CAFTA introduces no normative changes regardingpublic contracting inthe country, but instead reinforces the current legal regime on administrative contracting. Annex 111- A includes a detailed analysis o f the concordance between Costa Rica's legal framework and the dispositions o f DR-CAFTA. 117. Although Costa Rican legislation is in accordance with DR-CAFTA's requirements, it i s necessary to improve certain administrative practices to guarantee the full application o f the principles o f national coverage, publicity and transparency. The CostaRica CPAR 29 work inthese areas undoubtedly signifies animportant challenge for public administration in the country. Costa Rica has developed some systems of publicity and transparency- including COMPMRED- that have significant potential. However, the systems fail to incorporate all institutions, and such it is difficult to fully capture the dimensions of each inthe realmofpublic contracting. CostaRica CPAR 30 CHAPTER V PROCUREMENT PERFORMANCE INIADB AND WB PROJECTS 118. This section studies procurementperformance inCosta Rica inprojects financed by the A-WB that use standard documents to report on execution, performance audits, and project supervision. It also includes ex-post review and an evaluation o f institutional capacity. 119. Profile of the IDB portfolio. The IADB's portfolio in Costa Rica includes net commitments for $592 million and a non-reimbursable portfolio for US$204 million to February o f 2004. The portfolio consists o f 10 projects to December o f 2002, o f which four represent 29% o f the amount that has yet to be released, which was approved for the period from 2000-2002. The sectorial composition o f the portfolio is distributed inthe energy sectors (57%)' modernization o f the state apparatus (26%), health and education (11'%0), agriculture (5%) and water and sewage (1%). The technical cooperation portfolio consists o f25 operations to support the Bank's strategy in areas such as agricultural development, commerce, inffastructure, microbusinesses, and humancapital. Additionally, 2 small projects, each oriented towards microbusinessdevelopment, arecurrently underway.The FOMINportfolioismadeupof 13 projectsfor atotal amount o fUS$6.8 million, 4 o fwhich areregional inscope. Additionally, 3 other funds are currently operating in Costa Rica (CFA, E & CO and Ecoempresas) that have executed9 operationsfor atotal o fUS$3.1 million. ProjectName ApprovalDate Amount inUS$ Support for Public Sector Reform 30-June-97 12.65m Water for Urban Center program and 9-October-9 1 50.95 Rehabilitation o f the LimonProvince Improvement to Health Services 25-NOV-92 42.00m Cadastre and Public Renistrv 29-NOV-00 65.00m Development o fthe Health Sector 30-Jan-03 6.35m Power Sector Development I11 1-Dec-93 320.00m Power Interconnection for Central 28-NOV-01 40.00m (total) America (Regional Project -2 operations) Sustainable Agro. Productivity 27-NOV-02 14.40m Total 601.76m 120. Areas to improve and Technical Matters. Progress has been made. In fact, procurement has been improved through coordinated efforts between executing entities, the Controller General's office and IADB-WB to make national legislation compatible with the Bank`s norms and policies. Additionally, IADB is representedby a PermanentAdvisory Group for Procurement (GAPA, its Spanish acronym) that maintains close ties with executing entities, the Controller General's Office and the Bank`s procurement entity to facilitate a timely decision makingprocess.Nevertheless, a "no-objection" approval must be givenby Sectorial Specialists for absolutely all contracting that is financed by the IADB in Costa Rica This causes a Costa Rica CPAR 31 burdensome paperwork process and significant delays. Ifthe GAPA has to meet with the Procurement Committee at the Main Office, the approval process takes, on average, 3 months. In the ICE, for example, of the 50 tendering processes conducted in 2003, 12 were suspended and brought before the Procurement Committee. A case of particular interest involved a drilling operation tender that received differing opinions from the CGR and the Procurement Committee. As a result, IADB pulled financing and cancelled the procurement order. 121. Profile ofthe WorldBank's Portfolio. The World Bank's active portfolio consists of 2 projects: Ecomarkets (US$.32.6 million) and a project to Strengthen and Modernize the Health Sector (US$.17 million). The portfolio also includes 2 donations to the Global Environment Facility-GEF, one for Biodiversity (US$.7 million) and another for Ecomarkets(US$.8 million). Nameof the Project Cameinto Close BIRF Donation Effect I Health Sector Proiect I 6-Januarv-03 I 31-Dec.-06 I US$17m I 122. The World Bank's assistance in Costa Rica has been limited, and the implementation of the portfolio, although small, has beenslow. Despite the fact that there are many well-run institutions that employ high-caliber professionals, a seemingly limitless number of internal, centralized approvals have hamperedproject performance. 123. The Country's Assistance Strategy (Country Assistance Strategy -CAS), published inApril of 2004, consists of a selective program for loans and consultancy services that is focused more on knowledge transfer inareas of mutual interest than on program financing. The programs proposed (6 operations for US$ 216 MO for the period from 2004 to 2007). This loan program, although modest, represents an increase in the scope and size of operations incomparison with those executed over the past decade. 124. The projects proposed in the CAS include: Equity and Efficiency in Education (FY04-US$3Om); Project to Modernize Water and Sewage (FY05 -US$70 m.); Project in the City of Puerto Lim6n (FY OS-US$ 70m); EcomarketsProject I1(FY 06-US$ 30m.); e- government for citizen services (LIL-FY06- US$ 3m) and an Agricultural Project (FY07- US$15 m.). 125. Performance of the WB's portfolio. The performance indices for procurement vary. Despite some deviations, there have beenno major problems inthe projects financed by the WB through GEF (environmental) donations and the Ecomarkets Project. The projects' executing bodies have contracted according to the rules of both institutions and standard tendering documents; the number of complaints received thus far has not been CostaRica CPAR 32 significant. Auditors have not detected signs o f corruption, fraud or inadequate management o f funds or procedures. Nevertheless, implementation has been slow. 126. The Health Sector Strengthening and Modernization Project has recently been impacted by allegations o f fraud and the subsequent firing o f the Executive Director of the Costa Rican Social Security Office. While the procedures stipulated in the Loan Agreement have been followed, the number o f internal reviews and lately the review and questioning o f several contracts by Assembly Representatives tend to raise too many objections and conduct an excessive number o f revisions inthe process thus causing delays in project implementation -even further than in the past- and slow down of loan disbursements. 127. Despite efforts to include loan agreement approval for the health care sector inthe Bill, Article 5 clearly stipulates that the "Guidelines and Procedures for Procurement set forth inLoan Agreement No. 7068-CR and its schedules will prevail over the procurement procedures, norms and contents specified in the national legal framework that govern goods and services procurement actions in this contract." All activities planned must be approved by the Institution's Board o f Directors. 128. In order to generate a culture of austerity, consultant services are permitted only under exceptional circumstances, not on a permanent basis. Consultancy will be focused only on efforts to strengthen health programs that cannot be conducted by the institution's staff. All consultancy requirements are to be submitted to the Board for approval and should have thejustification o f the corresponding entity's management. Exceptions will be made only incases where the amount involved is under US$2,000. 129. Once the approval o f the Institution's Board o f Director has been secured, contracts for more than US$.21,000 must be approved, as instructed by the Controller General o f the Republic, by the Legal Division o f the Institution. All contracts that exceed US$.162,000 are sent to the Controller General's office for clearance after the respective Legal Division has given its ok. All of these interventions add, on average, an extra 3 months to the process. The supervision missions suggested that authority should be delegated to the Director o f the Health Project Implementation Unit in order to move the procurement processes along. However, given current accusations o f corruption, an immediate decision on this point i s not expected. O f the loan for US$.17m- in effect from January o f 2003 to date- only US$1.5 million has been disbursed. 130. The Efficiency and Equity inEducation Project was negotiated from April o f 2004 to March o f 2005. It was signed on June 9, 2005 and was scheduled to be brought before the Assembly for consideration in August o f 2005. It is hoped that the time that has been lost can be made up during project execution through implementation o f specific measures identified on the basis o f lessons learned. 131. The coordinating unit o f the Ministry o f Public Education (MEP) has a good record in executing projects financed by the Bank. It belongs to an MEP department, which ensures that the Government's directive to use installed institutional capacity i s CostaRica CPAR 33 followed. Under the Basic Education Improvement Project (PROMECE) financed with IADB loan proceeds -initially co-financed by the World Bank- the coordinating unit was given legal status so that it can better manage the resources assigned to the project. The MEP will request approval to assign legal status to the Efficiency and Equity Project withinthe law to bebrought before the Legislative Assembly. 132. Iflegal status is granted, processeswillbe simplifiedandexpedited as they will no longer have to go through the Institutionalized Procurement Unit o f MEP. Steps will be taken to include -withinthe articles of the Law that approves the loan- specific provisions necessary to ensure that the Bank's Guidelines prevail over the National Procurement Law. This measure would be a practice to be applied inlending operations proposed bythe Bank inorder to prevent deviationsthat tend to arise at the project execution stage. 133. The L C A grants precedence to international agreements and their respective procurement norms. Nevertheless, different interpretations on the part o f officials and the ad-hoc practices o f some institutions have led to contradictions that have impacted on the execution o f projects financed by the Banks. The one issue most affected involves the selection o f consultants (firms or individuals) as the L C A provides public biddingmust be used while the Banks' Gudelines stipulates short list procedures. This report recognizes that this weakness in the L C A must be dealt with and is expected that the discussions currently being held with the Government lead to an agreement towards harmonization o f consultant practices. CostaRica CPAR 34 ANNEX I INDIVIDUALSINTERVIEWEDDURINGTHE MISSIONS NAME POSITION ENTITY >ic. DavidFuentes Vice Minister of Finance MinistryofFinance Mrs.Jeanette Solano Garcia Director General of Goods Ministry of Finance Administration and Administrative Procurement. (DGABCA) - MinistrvofFinance Alicia Avendaiio Rivera Director General of MinistryofFinance InformationTechnology Lic. Carlos E. MenaRodriguez Budget Authority MinistryofFinance Ana MiriamAraya Porras Budget Authority MinistryofFinance Gabriela Espinoza Headof Systems Engineering Ministryof Finance (SIGAF) Lic. Guillermo Barquero Cruz Head of Procurement Municipality of San Jose Lic. Marco Castro Camacho Assistant Head of Procurement Municipality of San Jose Lic. Manuel Conales Umaiia Head of the Unit for The Office of the Authorizations and Approvals Controller General ofthe Republic(CGR) Rosy Conejo Fernandez, Msc Divisionof Institutional CGR Development Unitfor Authorizations and Approvals Lic.Marcela Arag6n Sandoval Unitfor Authorizations and CGR Approvals Lic ManuelMartinez Sequeira Headof the Consultancy CGR Divisionand Legal Management Lic. Marco Vinicio Alvarado Associate Manager CGR Lic. Jesus Mora Associate Manager CGR Lic. Daniel Saenz Quesada Head ofthe Divisionof CRG Operations, Evaluationand Fiscalization Eng. Jaime MolinaU. Presidentof the Costa Rican Private Sector Chamber of Construction Federico Valerio Ford Advisor, PROCOMER MinistryofForeign Trade Susana Vazquez Advisor, Head Office of MinistryofForeign Foreign Trade Trade Dieter Fiegerg S. PermanentDirector Private Sector Chamber of Commerce of CostaRica CostaRica CPAR 35 Francisco Gamboa Soto Economic Advisor Private Sector Chamber of Commerce o f Costa Rica LuisDiego Osborne GeneralManager Private Sector GBMof CostaRica, S.A. Lic.Denise Aguero Director of Contracting Ministry ofPublic Work andTransport (MOPT) Lic. Sergio C6rdoba Sub-Director of Contracting MOPT Arch. Gabriela Murillo Jenkins GeneralDivisionof Social Security Office of Operations Costa Rica (CCSS) M.B.A.HeibelRodriguez GeneralManager Costa Rican Instituteof Araya Aqueducts and Sewage Systems (AyA) Lic. Roosevelt Alvarado R. Director of Sumlies AvA Dr.Waldemar Nufiez Lopez Director Costa Rican Institute of ProcurementOffice Electricity (ICE) NAME POSITION ENTITY Msc. Luis Conejo M. Director ofthe Head Office for ICE Informationand Technology Alejandro LaraVargas Coordinator of Administrative Costa Rican Contracting Radiographic Association S.A. (RACSA) Albert0 Bermudez 0. Assistant General Manager RACSA Leonard0 Campos HeadOffice for Small and MinistryofEconomy, MediumBusiness IndustryandCommerce Miguel Tapia Z Financial Director Chamber of Construction rArchitecture and CostaRica CPAR 36 JGilberthGarro Jara l Social Security Office of Advisor Costa Rica James F Phillips Director of Planning The CostaRican Institute of Aqueducts and Sewage Systems CostaRica CPAR 37 ANNEX I1 PRIVATE SECTOR PERFORMANCE I. TheConstructionIndustry 1. The construction industry is the most significant player in the procurement context. Similar to other situations found in other parts o f the world, construction is composed o f various market areas that overlap, including housing and building construction, civil works, repairs and maintenance, and equipment suppliers and materials. 2. There are various business associations well organized, including the Costa Rican Chamber o f Construction andthe Chamber o f Consultants, Engineers and Architects. The Federated Association o f Engineers and Architects i s in charge o f ensuring that its membersmeet professional standards. 3. The public sector i s the principal agent o f demand for civil engineering construction works that are executed under contracts with the private sector while the private sector dominates the development and construction o f housing, commercial buildingandtourismprojects. 4. The statistics o f the Federated Association o f Engineers and Architects shed some light on the annual billing amount and the number o f businesses involved in generating the same. Figures for the year 2004 show that 19,634 new works were undertaken by the private sector for an approximate total value o f US$856 million, which represents around 60% o fthe value for total production, which was US$1,400 million, or 8% o f GDP. 5. The construction sector is fragmented and only a few companies are responsible for large contracts (the remainder o f contracts fall to small companies or individuals). This fragmentation makes for stiff competition amongst bidders in a free-market atmosphere. Nevertheless, new contractors find it difficult to enter into the market due to the number of requirements that must be fulfilled and the length o f the decision making process. This is particularly onerous for foreigners and small andmedium businesses that are not familiar with the system. A construction permit can involve more than 100 steps, including a business's registration in the Federated Association and the payment o f a "construction fee" applicable for all work plans that are presented for approval before state or municipal offices. 6. The lack o f adequate production indicators for different industry segments impedes the strategic planning efforts o f both the sector and its businesses. This i s due to the fact that it is difficult to precisely determine the significance o f specific patterns in different market areas and the impact of the same on construction companies. For example, one o f the most notable patterns over the last few years has been a decrease in the public sector's demand and the compensating effect produced inpart by an increase in employment growth in the private sector. Nevertheless, many businesses reacted too slowly to this market change, hampered by a lack o f timely market information and a CostaRica CPAR 38 proper analysis of indicators. Construction demand seems to be determined principally by: 0 The clients' tendency to pass on responsibilities to the contractor inthe early stages of the project 0 The growth o f demand inthe private sector, which i s probably more variable than the demand inthe public sector The growth of demandfor repairs andmaintenance,principally inthe public sector Other characteristics ofthe environment inwhich construction firms operate include: 0 Certain monopolies for material suppliessuchas iron, cement and fuel. 0 Highsocial costs. 5 1% of the value of apayroll corresponds to social obligations. 0 Monopoly in the insurances issued by the state-owned INS. This creates a situation where the majority of the guarantees necessary in a contracting process must be issuedby the banks. Heterogeneouity of contracting conditions. 11. The SmallandMediumBusiness(PYME) 7. Small and medium companies are an important business sector in Costa Rica. Although the information on the number of PYMEs dedicated to construction activities is scarce, its magnitude can be inferred from the number of projects and monetary amounts registeredwith the FederatedAssociation for Construction and Consultancy Work. 8. Inthe year 2004, the FederatedAssociation registered close to 50,600 projects in these areas with an estimated value of US$945 million and which involved 14,000 professionalsand 1,100 affiliatedcompanies. The industry'sfragmentation, coupled with the fact that the data provided by the FederatedAssociation excludes the public sector, makes it difficult to determine exact figures. However, it is possible to infer that the majority of the Association's contractswere executed by PYMEs. 9. Ifone adds to this the fact that a significant portion of work generated by large contracts i s sub-contracted to small businesses, many of which are informal PYMES, we can make a gross estimate that 30,000 PYMES are currently involved in construction and consultancy work. 10. The government is interested in backing and developing this market sector and taking advantage of the benefits that it can offer to the national economy. In the year 2002, the Legislative Assembly approved Law 8262 to strengthen PYMES by establishing a legal framework for institutional support. 11. Ina similarway, the DR.-CAFTA recognizesthe creation ofprograms to promote the PYME's participation in the tendering process for state goods and services and excludes these programs from the coverage established by the agreement. The Ministry of Economy, Industry and Commerce, which acts as the supervisory agency through its CostaRica CPAR 39 General Office for Support to the Small and Medium Businesses, i s involved in various projects to strengthen the PYMEsthrough: The Special Fund for the Development o f Micro, Small and Medium businesses, operated by the Banco Popular, is directed towards PYMEs that do not have access to credit and i s comprised o f a fund for guarantees and another for financing. A non-reimbursable fund, administered by the Ministryo f Science and Technology, finances activities directed towards promoting and improving management capacities and competitiveness amongst the PYME. The two funds mentioned are in the initial stage o f operation. The implementation o f an Internet page with information on government policies and regulations, technical assistance and information on other organizations also able to provide assistance. Additionally, the OAS is financing a project to support the internationalization o f PYMEs through the strengthening o f services based on information and communication technologies for export management, the partnership promotion, business creation, etc. Pilot plans for training and consultancy that apply tools for business organization, humanresource management, accountingandfinance, sales andmarketing strategies. 12. Inthe year 2001, the International Finance Corporation (IFC) published a study with the results o f a survey applied throughout the world on: "Business Sizes and the Business Environment." This report contained information from businessmen related to the obstacles that they had encountered in developing their businesses. In the case o f Costa Rica, the principal obstacles identified by PYMES were relative to financial aspects (including inflation, the rate o f exchange, and financing), taxes and onerous regulations, deficiencies in infrastructure, and criminality. The majority o f these barriers were confirmed duringthe preparationo fthis CPAR: 0 The perception that the government procurement and contracting process i s long, complicated and costly 0 The excessive demand for licenses, permits, registries and inspections 0 Taxes, regulations, andheavy and cumbersome social obligations 0 Little PYME's limited familiarity with public sector procurement and contracting systems and a loss of interest ifthey fail to win the first tendering processes inwhich they participate 0 The institutional weakness o fthe agencies that assist PYMEs. 0 Limitations inaccess to credit, guarantees, and insurance. 13, The most salient recommendations regarding this sub-sector advocate process simplification, the need for pragmatism inthe focus o f institutions that deal with PYMEs and the importance o f helping businesses to compete effectively in an open and just market. 111. The ConsultancyIndustry CostaRica CPAR 40 14. The Chamber o f Consultants for Engineering and Architecture has around 50 members that bill approximately US$.60 million per year. Regardless, there are many small companies or individual contractors that are involved in architecture that are not affiliated with the Chamber. In general, these businesses provide small-scale services to individuals or companies. 15. The preparation o f this CPAR promptedthe Chamber to make an inventory o f its membership by using World Bank formats. The environment in which consultancy is conducted i s similar to that described for construction businesses and PYMEs. This means that an open market is operating but subtle barriers exist for new businesses, whether national or foreign, which generates complexity inregulations and tendering and procurement policies in government agencies that in turn translate into higher costs for participants. 16. The business environment for professionals is characterized by high levels o f competitiveness both within the same professional circle and amongst other professional areas. Consultants operate very independently in the design phase o f projects but less so during the construction phase where their role is generally limited to supervision or consultancy on behalf o f a client. 17. There are problems with the attainment o f professional liability guarantees, particularly when the amounts involved are high (the I N S only provides insurance coverage up to one million dollars and any amount beyond must be insured abroad). In practice, since the L C A treats contracting o f consultancies as it does any other form o f bidding (works or goods), the professional liability is equivalent to performance guarantee or bond with values determined up to 10 percent o f contract price, as provided inthe LCA 18. Another relevant feature o f the local consultancy context is that environmental regulations require very specific studies that call for highly qualified staff who are few in number. Finally, there is a new requirement not yet implemented which requires that all consultant firms must attain I S 0 certification. 19. Costa Rica is one o f the few countries that has not de-regulated the practice o f technical professions and as a result, has avoided many o f the problems that confront consulting firms in other countries, including: the proliferation o f unqualified firms offering services, the seemingly endless list o f companies participating in tendering, the clients' tendency to measure professional activities with the same stick used to evaluate industrialproducts and select consultants based only on prices, which causes a decline in the quality ofprofessional services andprojects. 20. In Costa Rica, professional services are contracted through open tendering. In general, 8-10 proposals are received (not 30 or more as i s seen in other countries) and selection i s basically made according to the technical quality o f the proposals although price i s somewhat relevant to the process. In summary, competition appears fair and the results acceptable. CostaRica CPAR 41 21. The consultancy companies have been forced to find new tactics to face competition and respond to an environment that requires diversification in strategies and the development o f more commercial focuses. For example, the increase in certain contracting modalities such as design and construction at a fixed price, in addition to the so-called BOT, impose changes in the way that engineers and architects organize their professional practices. 22. The firms that have traditionally worked for the public sector generally specialize inproject designandworks supervisionand as such lack the flexibility neededto react to market changes (more demand inthe private sector and less in the public sector) and to economic cycles (globalization, DR-CAFTA, public debt). 23. Some concern exists regarding the direction that the engineering and architecture professions will take inthe future given that many businesses lack an ample vision o f the market and their own objectives. In general, consultancy firms tend to be strongly oriented to operational aspects o f management rather than strategic management. This i s possibly due to the technical orientation o fthe businesses' owners. CostaRica CPAR 42 ANNEX111 THE DR-CAFTA AND THE PROCUREMENT SYSTEMINCOSTA RICA ReferentialFramework 1. The international agreements on government procurement are another incentive in the drive to consolidate and reform contracting practices and procedures inCosta Rica. 2. Costa Rica, although not a part o f the Agreement on Government Procurement of the World Trade Organization (WTO), has effectively incorporated this issue inthe free trade agreements to which it has subscribed since 1994.14 Currently, Costa Rica i s a member o f four free trade agreements: CR-Mexico (1994), CR-Dominican Republic (2002), CR-Chile (2002) and CR-Canada (2004)'5. The country is also inthe process o f approving two other agreements at the legislative level: CR-CARICOM and the Free Trade Agreement between Central America, the United States and the Dominican Republic (DR-CAFTA.).16 Costa Rica has also actively participated in the Group Negotiation on Public Sector Procurement inthe framework o f the Free Trade Area o f the Americas (ALCA). Nevertheless, of these agreements the DR-CAFTA will have the greatest impact.l7 3. The DR-CAFTA, once ineffect, will signify an important commitment on the part of the government to assume responsibility for encouraging measures to modernize the state in key sectors. These efforts will extend to the national, provincial and municipal levels and will include autonomous entities and state businesses. It is important to add that the adequate implementation o f the DR-CAFTA will represent an opportunity for the government to modernize, deepen and consolidate reforms in the public contracting sector. 4. Chapter 9 of the DR-CAFTA, which deals with government procurement, i s based on NAFTA.Its objective i s to establish the guarantees that the Parties must give to the suppliers, goods and services o f the other Parties to engage in public procurement." The chapter will allow for: (i) consolidation o f the different principles and procedures a o f public contracting established at the national level and, (ii)a modernization of all national practices that in one way or another have impeded the participation of foreign suppliers ingovernment contracting. l4 Nevertheless, Costa Rica actively participates in the Working Group on Transparency in Public Procurementofthe OMC andhas activelyrecognizedthe needto reach an agreementon this subject. The Free Trade Agreement subscribedbetweenCosta Rica and Canada in the year 2002 does not deal with publicprocurement. l6For more information on the DR-CAFTA's outcomes in other areas, we recommend reviewing the Explanatory Document of the Free Trade Agreement of Central America, the United States, and the Dominican Republic published by the Ministry of Foreign Trade of Costa Rica in the year 2004 and availableat www.comex.go.cr. 17Over the last few years, almost 50% of CostaRica's imports and exports have involvedthe U S market. Additionally, almost60% of the directforeign investmentover the last decadehas come from the US. l8The DR-CAFTAdefines Party as any statethat inwhichthe FTA i s applicable. CostaRica CPAR 43 5. The DR-CAFTA stipulates specific obligations for the entities registered on Costa Rica's positive list and accepts the application o f only those procedures and laws that are in keeping with its requirements. The treaty decrees that the parties must apply the principle o f national handling o f goods, services and suppliers from other countries and determines the way in which the origin o f the goods will be established; it prohibits the application o f special compensatory conditions and stipulates that no measures involving customs duties or other import tariffs or charges will apply that differ from those measures established specifically for public contracting. 6. Another characteristic o f DR-CAFTA i s its multilateral nature. The treaty's public procurement provisitions treat merchandise, services and suppliers from other Central American countries or the Dominican Republic in the same way as those coming from the United States. Regardless, the agreement stipulates different coverage for different countries. In the case o f the US, the chapter applies only to public entity procurement covered by the treaty that exceeds the established thresholds while the coverage for Central American countries is much more extensive due to the fact that it does not exclude government entities and applies no thresholds. 7. The DR-CAFTA incorporates specific commitments regarding market access (foreign suppliers o f goods and services should be treated in the same way as national suppliers). The DR-CAFTA's scope i s limited to the entities listed in its tables and includes central, local and decentralized entities wherever national budget funding applies (which primarily affect the health and construction sectors). Unless otherwise specified, the DR-CAFTA covers all the subordinate agencies on these lists. 8. Nevertheless, the DR-CAFTA incorporates provisions that establish different coverages for different countries. As such, the treaty sets thresholds to delimit coverage between Central American countries, the Dominican Republic and the US while no thresholds are set for contracting with Central American countries or those conducted between said countries and the Dominican Republic (given that coverage i s more extensive). With regard to the coverage between the United States and each Central American country, the thresholds applicable to Central American countries will be double that o f the thresholds applicable to US entities during the three year period directly following the date on which the treaty comes into effect. After this period, the thresholds will be equalized. 9. The DR-CAFTA's coverage extends to national, provincial and municipal levels and includes autonomous entities and state-run businesses. The applicable thresholds are: 0 US$58.550 for goods and services and US$ U S $6.725.000 for construction services at the central government level. 0 US$477.000 for goods and services and US $6.725.000 for construction services at the sub-central government level. 0 US$250.000 for goods and services and US $6.725.000 for construction services for decentralized entities. CostaRica CPAR 44 11. Implicationsof the DR-CAFTAinPublicContracting 10. The implications o f the DR-CAFTA for the public contracting regime in Costa Rica are identified as: First, access for suppliers and contractors from member countries o f the DR-CAFTA that decide to participate inprocurement inthe public sector inCosta Rica. Second, modifications to the legal and regulatory framework. Third, modifications inthe administration's procurement procedures and practices. 1. Supplier andContractorAccess l9 11. With regard to the implications listed above, it is important to analyze the list o f entities covered according to the expenditure allocations for goods and services procurement in public entities. It is clear that no thresholds practically exist for contracting among Central American countries or between said countries and Dominican Republic while the situation with the United States is different given that the establishment o f thresholds -combined with a positive list approach aimed to determine which entities the treaty i s applicable to- demonstrates that the percentage o f real contracting covered by the same i s infact limited. 12. An analysis o f the list of entities covered by Annex 9.1 shows that, inthe case of the United States, the Costa Rican Petroleum Refinery is not included in the treaty's coverage despite the fact it is the largest buyer o f non-personal goods and services in Costa Rica. This situation can be primarily explainedby the following: Costa Rica did not include the entities covered in stratas A and B in its negotiation process with the expectation that the United States would indicate a specific interest.*' In the specific case o f RECOPE, the United States showed no interest in including this institutioninthe coverage. Additionally, Article 9.9.2.d o f the agreement stipulates that any given procurement entity may award contracts by all means other than open tendering procedures when involving items procured inmarkets for basic products such as oil, which constitutes 19For further reference, see Annex 2 o fthis report, which contains a comparative matrix o f DR-CAFTA's coverage. 2oFor further information regarding public agency classification by strata inCosta Rica, see Section B o f this report. CostaRica CPAR 45 90% o f the goods and service procurement conducted by RECOPE. As such, if RECOPE were to be included amongst the entities covered by the treaty, it would be conceivable to use any procurement procedure to purchase oil. This may be the reason why the United States has never shown interest in including RECOPE on the list. 13. It is important to point out that the information available when the treaty was negotiated was based only on the amounts budgeted for public sector procurement o f non-personal goods and services. As such, the negotiators from both teams lacked the information needed to adequately develop and specify the chapter's coverage. Without a doubt, this situation affected the negotiationprocess. 14. This is clearly reflected in the analysis o f the percentage o f the budget's goods and services procurement that was finally included within the coverage with the United States. Inthis sense, o f the Institutions that are included in strata A and Byonly ICE and CCSS are on Costa Rica's positive list. The other institutions in these strata, which account for more than 54% o f the budget, are not covered in the agreement with the United States but are contemplated inthe pact signed with other countries. 2. LegalFramework21 15. A comparative analysis indicates that total compatibility exists between the regulations established in the Costa Rican legal framework and DR-CAFTA's normative dispositions. The DR-CAFTA makes no changes in the norms on public contracting in the country but instead acts as a reinforcement to the existing legal regime on administrative contracting as described in the specific contents o f the agreement (as described below).22 a. Ambit of apdication: the provisions of Chapter 9 o f the DR-CAFTA apply to public procurement of the entities o f the Parties incorporated in Annex 9.1 regardless o f the contracting method- including contracts for public works concession- when the estimated amount of the contract exceeds the threshold that has been established. 16. The treaty also stipulates a series o f activities to which it does not apply, such as donations and loans made to the state, procurement o f services or agencies for fiscal deposits, contracting o f public employees and activities involving government employment and supply o f merchandise and services to state, regional or local governments. Some o f these measures are excluded from the procurement procedures regulatedby LCA. 21 The legal basis for public procurement is based on article 182 of the Political Constitution, the Law for Administrative Procurement No. 7494 (LGCA) and its Regulations (RGCA), The General Law on the Concession of Public Works No. 7762, the General Law for Public Administration No. 6227 and the OrganicLaw ofthe Controller Generalofthe Republic No. 7428. 22To further analyze the concordance between the legal framework of Costa Rica and DR-CAFTA's dispositions see Annex A, which contains a comparative matrix of the treaty's articles and a corresponding correlation with the Costa Rican legal framework. CostaRica CPAR 46 17. Inthe case of Costa Rica, the agreement carries an exception clause stipulating that it will not apply to Public Administration Procurement programs directed towards micro, small, and medium businesses (PYMES). The fact that the government o f Costa Rica can develop procurement policies, mechanisms, and purchasing instruments for the public sector that support the PYMES' development i s set forth in the Law for Strengthening the Competitiveness o fthe Small and Medium Business No. 8262. b. Principle of national treatment (no discrimination): the DR-CAFTA incorporates a series of fundaniental administrative contracting principles out o f which the most outstcandingis the principle of national treatment (no discrimination); it is applied infavor o f suppliers, merchandise, and services provided by the other Parties to the agreement. 18. The LGCA recognizes the principle o f equality and open competition that is implicit in national treatment given that it causes the Administration to give equal treatment and participatory opportunities to all potential suppliers in administrative procurement procedure^.^^ c. Principle o f publicitv: the treaty stipulates different publication obligations according to the laws, regulations, procedures, judicial rulings and administrative decisions applied to public contracting; this also applies to the notifications placed to announce tendering opportunities for all areas covered by the agreement. 19. There is a direct relation between the Costa Rican legal framework and the provisions o f the DR-CAFTA concerning this principle. It is established in a general manner inclauses o f the Political Constitution referring to the publication o f laws and in the General Law for Public Administration, which contains references to the obligation to publishactions that affect the public interest. 20. The L C A establishes the principle o f publicity by requiring mandatory advertisement o f bidding opportunities and procurement procedures in either printed, electronic or other means commonly consulted by pertinent individuals or entities. Inthe specific case o f public competitive tendering, the obligation exists for agencies to advertise in the Official Gazette the invitations to bid and key tendering management steps, as set forth in the procedures established inthe biddingdocuments. The RCA also contemplates similar stipulations. d. Prohibition of contract fractioninn: The chapter on Public Procurement is based on the principle o f non-fragmentation o f procurement contracts in order to avoid public agencies' non-compliance with the Chapter's obligations as set f'orth inthe General Law o fAdministrative Contracting and its Regulations. 21. This principle is extremely important given that studies conducted by the Controller General o f Costa Rica indicate that a marked tendency exists in certain 23The DR-CAFTA stipulates that each Party shall concede to the merchandise and services o f the other Party andto the suppliers o f such merchandise and services, no less favorable treatment than that given to its own merchandise, services and suppliers. Specifically, this treaty states that no Party may concede a local supplier less favorable treatment thanthat given to another local supplier based on a degree o f association or links with foreign property; or discriminate against any local supplier due to the fact that the merchandise or services offered by said supplier in responseto a specific procurement action involves the merchandise or services o f another Party. CostaRica CPAR 47 institutions to use mainly direct contracting for procurement purposes when this modality should in fact be reserved for exceptional cases. This situation may violate the principle o f non-fragmentation, to be analyzed indetail insubsequent sections. e. Deadlines for submission o f bids; the provisions o f the DR-CAFTA require that realistic time limits be set for bid preparation and submission. Specifically, it stipulates that the durations allowed for these tasks must be no less than 40 days from the date that calls for tenders were publishedto the deadline set for tender presentation. 22. Costa Rican legislation established minimumperiods that are contemplated inthe RGCA andwhich stipulate: 20 working days for public competitive biddingprocedures. 20 working days in the case of construction or concession of works or imported supplies. 10 working days for other cases. 8 working days inthe case of biddingprocedures by registry. Three working days for restrictedtendering procedures. 23. Costa Rican legislation sets minimum periods that may differ from those established by the DR-CAFTAbut no discrepancy exists inthe application o f provisions. As such, when determining periods, the government must take into account that as far as the provisions o f DR-CAFTA, at least 40 days must be allotted for any procurement modality. 24. The Annex to Chapter 9 also includes a note, which i s applicable to Costa Rica, indicating that the country must allot at least 30 calendar days to public tendering procedures and at least 10 calendar days for tendering by register during the first two years o f the commercial treaty. Once said period has expired, the general obligatory period o f 40 days should be applied.24 f. Procureincnt documents: the agreement stipulates thc minimum content of bidding documents and the way in which said documents should be made available, including electronic publications that are accessible to all interested suppliers. Specifically, the infomiation given must make reference to all areas that must be covered by tenderers when preparing and submitting tenders, including all aspects relative to the criteria that the contractinginstitution will utilize to awardthe contract. 25. Costa Rican legislation stipulates that tendering documents (cartel) must include general conditions and technical specifications as well as the bases to qualify and compare tenders. The RGCA includes also provisions on the minimum content of these documents as well as information on related modifications and clarifications. Nevertheless, the legislation does not contain specific dispositions that make institutions to publish electronically documentation in order to facilitate access to potential 24 Annex 9.b.i, Section C of the DR-DR-CAFTA stipulates that the 40-day period will not apply to contractingenteredinto by the Costa Rican Institute of Electricity (ICE). CostaRica CPAR 48 suppliers.25Consequently, Costa Rica should take measures to meet this requirement. In fact, Annex 9.1 o f the treaty has given the country two years to comply with this disposition.26 g. Technical specifications: the DR-CAFTA prohibits the Parties to draw up, adopt or use technical specifications that create unnecessary obstacles to trade, specifying that said specifications must be based on international norms or known national standards for performance and not merely on descriptive elements. The RGCA also contains this principle. h. Participation requirements: the treaty deals with this issue by regulating the way in which registiy requirements, evaluation or other requirements or conditions for participation in procurement are established. The treaty provides that conditions should be limited to the points essential to guarantee that the supplier possesscs the legal, technical and financial capacity to fulfillthe requirements and technical specifications o f the contract. The procuring agency should publish notifications with enough advance notice to allow interested potential suppliers to register, be evaluated or meet any requirement for participation. 26. Costa %can legislation sets forth, in both the LGCA and its Regulations, provisions that allow pre-qualification o f bidders in competitive bidding as well as tendering by registry or restricted tendering that are in keeping with the treaty's dispositions as discussed above. i.Contracting procedures: the DR-CAFTA stipulates that the procuringentities must award contracts through open competitive procedures, meaningany procurement method o f a Party as far as said procedure guarantees the general principles that are established in Chapter 9. Additionally, it stipulates specific cases in which the procuring agency can, under exceptional circumstances, award contracts by means other than open tendering procedures if and only if said procedures are not utilized to avoid competition or protect national suppliers. 27. Inthe case of Costa Rica, the legal framework stipulates in Article 182 of the Political Constitution and in the General Law o f Administrative Procurement, the principle that open or competitive procedures (open tendering, tendering by registry, restricted tendering and auction) should be applied as a general rule while direct contracting should be reserved for exceptional cases. 27 28. The LGCA and the RGCA stipulate the exceptional cases under which direct contracting can be used. Nevertheless, when examining the grounds for exception established in this norm, it can be seen that they do not exactly match those cases stipulated in the DR-CAFTA. Because o f specific provisions provided in the DR- 25 Article 40 o f the LCA stipulates that the Administration may utilize any electronic means to communicate acts related to contracting procedures if there are guarantees that the informationwill be receivedand the message will be intact. Nevertheless, this disposition is not obligatory as is under the DK-CAWA. 26The scope of the COMPRARED program that is explained in detail inthis study constitutes, without a doubt, an important step inthis direction. 27The practical application of this principle is analyzed in detail inthe next section. Studies conducted by the Controller General of the Republic show that direct contracting is utilized by many state institutions in the majority o f their procurement processes. CostaRica CPAR 49 CAFTA, public entities can not utilize in procurement processes covered by the agreement, some exceptional cases provided inthe national procurement law. j. Awardingof contracts: The Chapter onPublic Procurement spells out the requirements that suppliers' tenders must meet to be considered for contract awards. Specifically, it indicates that in ordcr for a tender to be considered, it must be submitted in writing and meet the requirements established inthe bidding documents. Itprovides also that entities shall award the contract to the bidder determined as capable o f executing the contract and whose bid results the most advantageous, according to the evaluation criteria established inthe biddingdocuments. 29. The DR-CAFTA stipulates that the procuring entities must notice participating suppliers o f contract award decisions, provide information regarding the basis o f such decision and the relative advantages o f the winning tender. Immediately after the contract i s awarded, advertisement must be posted indicating why a specific procurement method other than competitive bidding was utilized, in cases in where open competition was not applied. 30. Inthe caseo f Costa Rica, the regulations also stipulate that tenders must fulfill the basic requirements established in the bidding documents, be submitted in writing by a bidder that meets requirements for participation in the aforementioned documents. If none o f the tenders meets the requirements established in the bidding documents or determined that such requirements are not agreeable to the general public interest, then the tendering process shall be cancelled and such a decisiondulyjustified. 31. Additionally, the procuring entities must notice suppliers o f decisions related to contract awards and permit access to pertinent information regarding the same, in accordance with RGCA stipulations. Inpublic tendering procedures, an obligation exists to publishaward notices that indicate the name o f the entity and provide a description o f the contract and the award amount. Nevertheless, this obligation does not apply to procurement procedures other than public tendering. For this reason, Annex 9.1 o f the agreement gives the country two years to make the corresponding adjustments to its internal regulations. k. Confidentiality of information: the treaty stipulates that the Parties, their procuring entities and their supervisory authorities are forbidden from divulging confidential information without the formal authorization o f the provider o f said information if said revelation i s damaging to legitimate commercial interests or may adversely affect fair competition amongst competitors. 32. InCosta Rica, the General Law ofPublic Administration (LGAP) andthe RGCA indicate that neither the Parties nor the general public can have access to bidders' confidential bidder documents submitted solely for the purpose o f meeting specific requirements towards qualification, as stipulated by the procuring entity in the tendering process. 1. Guarantee and integrity o f Procurement practices: the treaty stipulates that each Party will adopt or maintain procedures to declare the ineligibility of bidders that have participated inillegal or fraudulent activities relatedwith the procurement process. CostaRica CPAR 50 33. The legal framework in Costa Rica contains sanctions that are penal or civil in nature for bidders who have engaged in illegal practices in the bidding process. These dispositions are listed inAnnex A. m. Objections from suppliers; the commercial treaty recognizes the need to establish at least one administrative or judicial authority that i s impartial and independent from contracting entities. This authority will receive and review objections raised by suppliers regarding the obligations o f the Party and its entities under this Chapter and issue pertinent resolutions and recommendations. In cases where an entity other than the designated authority reviews objections filed by a supplier, the Party must guarantee that the supplier has the option to appeal any decision reached before said impartial and independent administrative or judicial body. 34. Inthis sense, the Costa Ricannorms stipulate that legal control over the actions of Public Administration relative to large contracts corresponds to the Controller General o f the Republic.Additionally, the norms indicatethat boththe decisions o fthis body as well as those reached by the agency conducting the procurement process will be subject to jurisdictional control and can be challenged through the litigious-administrative venue. Boththe LGCA andthe RGCA contain detailed dispositions on this issue. 3. PracticesandProceduresinPublicProcurement ** 35. Although it i s evident that the Costa Rican legal framework i s fully compatible with the dispositions o f the DR-CAFTA, it is important to focus on some o f the elements o f contractual practice that require improvement.inorder to guarantee full participation o f and fairness to foreign suppliers and increased efficiency in the procurement processes conducted by statal institutions. a. Availability o f information to take strategic decisions:- as has already been mentioned inother areas o fthe study, Costa Ricalacks anintegrated system for public procurement to provide strategic information for decision making. COMPRARED i s a good tool for transparency that seeks to automate the state's administrative contracting. Unfortunately its scope i s limited to central administration, thus excluding the principal agencies that procure the largest amounts o f goods and services inthe public sector. 36. The difficulties associated with obtaining up-dated and detailed information on procurement becomes a significant obstacle to guaranteeing the full application o f the principles o ftransparency and publicity; two o f the most important pillars o f the principle o f efficiency promoted by the DR-CAFTA. The greater the publicity and transparency in management o f procurement, the larger the participatory base and the likelihood o f attaining better price conditions and quality. b. Lack of an integral vision: studies conducted by the Controller General's office indicate that no integral vision o f the procurement process inpublic institutions currently exists. Any efforts inthis direction require entities to prepare annual operating plans that 28For further information about the practices o fpublic institutions in Costa Rica, see section XX o f this report. CostaRica CPAR 51 can be used as the basis for national procurement plans that reflect properly their requirements for goods and services necessary to fulfill defined actions and goals intendedinannualoperatingplans.29 37. In order to guarantee greater efficiency in procedures, procurement processes must be uniform. For example, there are several supplier registries and product catalogues. Administrative practices vary from institution to institution, which significantly complicates the participation o f foreign suppliers in tendering procedures. These practices must be improved to promote competition and save the participants both time and money, which i s clearly the reasoning behind the trade agreement. c. Excessive utilization o f direct contracting procedures: despite the fact that national legislation stipulates that directing contracting i s to be used only under exceptional circumstances, it i s actually a common procurement practice in many institutions according to studies conducted by the CGR. It i s important to consider that the excessive utilization o f this type o f tenderingexposes the procuring agencies to the risk o f incurring in contract fragmentation as a means o f avoiding the application o f more complex tenderingprocedures with more requirements andformalities. 38. This practice is not only expressly prohibited by Costa Rican legislation, but is also a clear violation o f the dispositions set forth in the DR-CAFTA. Additionally, fragmentation directly affects the institution given that buying in small amounts impedes efforts to achieve better prices and take advantage o f the economies o f scale generated by volume procurement. In fact, abuses in the use o f direct contracting procedures leads to significant administrative expense given that each purchase i s conducted under an independent procedure. 39. Based on the aforementioned, it i s possible to assert that ifCosta Rican legislation is to meet the DR-CAFTA's requirements, it will be necessary to improve certain administrative practices to guarantee the full application o f the principles o f national treatment, publicity and transparency. The work in these areas undoubtedly constitutes a significant challenge for public administration in Costa Rica, which has developed some promising systems for publicity and transparency but has yet to incorporate all institutions inthe effort. Currently, it i s impossible to fully capture all the dimensions o f public procurement inthe country. 40. Ifthe treaty' provisions are also applicable to other Central American countries and the Dominican Republic, it is logical to assume that the practices and systems established to guarantee the DRCAFTA's principles will also drive efforts for increased transparency and publicity in these countries. This will in turn benefit Costa Rican suppliers that participate incontracting procedures. 29InJanuary of every year, each administrative institution can publish its annualprocurementplans inthe Official Paper La Gaceta. This information (with the exception of institutions coveredby COMPRARED and others that under their own initiative publish on their web pages) is not easy for interested parties to access. This is a serious impediment to supplier use of information. Additionally, suppliers must be listed on aregistry ifthey wish to offer their productsto institutions that possesscatalogues with productsthat are different from those offered by other state entities. CostaRica CPAR 52 41. Additionally, upon analyzing the list o f government activities included at the sub- central level for Costa Rica, it i s possible to observe that almost all o f the country's municipalities were considered. Despite this, the DR-CAFTA will never be applicable to the majority of operations conducted at this level given that the threshold is set at US$477,000, which is, in the majority o f cases, si nificantly more than the total budget allotted to municipalities for procurement o f goods.$0 42. The aforementioned leads to the conclusion that, with regard to Costa Rica's relation with the United States, the treaty covers around 40% o f the budget for procurement o f goods and services and the main impact is produced not by the Chapter's coverage but instead as the result o f efforts to consolidate and strengthen procurement procedures and practices. 43. Finally, with regard to coverage, the DR-CAFTA recognizes the public administration's efforts to establish a program for procurement o f goods and services to ensure at least the minimal participation o f PYMES. Any programs that the Costa Rican government establishes under these lines will also be excluded from the coverage set forth by the treaty. It i s important to point out that this exception i s also applicable to the other Parties to the agreement.31 111. Summary and Recommendations 44. This section has identified the areas that must be worked on if Costa Rica is to ensure that it i s inthe position to reap the benefits o f the DR-CAFTA: Develop actions that unify administrative contracting practices in the different institutions for the purpose o f increasing efficiency and complying with the conditions established inthe DR-CAFTA. Immediate efforts are needed to develop a single catalogue for all the institutions that classifies the merchandise procured in contracting procedures and the corresponding expense. Along the same lines, a single supplier registry should be established to facilitate the participation o f more tenderers intheprocurementprocess. In order to guarantee transparency in public contracting, all suppliers must have access to timely information that helps them to decide which tendering processes they wish to participate in. Real access to information on the universe of public procurement that includes not only data on future procurement but also on past procurement becomes a fundamental instrument for strategic decision making. It also 30Only the Municipalities o f SanJosC, Alajuela, BelCn, Cartago, Escani, Goicoechea andHerediahave rocurement budgets that allow them to contract for amounts higher than the established thresholds. The Law on PYMES No. 8282 stipulates the need to create a national program for procurement o f goods and services that ensures the minimumparticipation o f national PYMES that produce goods that are comparable inquality, supply and are equal or inferior inprice to imported products. Public sector procurement will not discriminate against or show bias towards national businesses over foreign counterparts or larger PYMES. The State will develop procedures that facilitate the PYMES compliance with requirementsand procedures relative to procurement. CostaRica CPAR 53 contributes to guaranteeing that the principles o f publicity and transparency inpublic procurement will be applied. This information will also help the individuals incharge o f the country's trade policy to conduct on-target negotiations that are based on precise knowledge o f the universe o f public procurement in Costa Rica. This will provide negotiators with a strategic advantage that will definitely benefit the country as a whole. The government should make an effort to bring together all o f the institutions under an integrated procurement system that helps it not only to guarantee the transparency o f procurement but also promotes efficiency. COMPRARED is clearly a step in the right direction, but it needs to extend its coverage beyond the central government's institutions to include municipalities and decentralized entities. The first institutions that must be included in this system are the 6 entities in Strata A given that together these bodies account for a significant percentage o f the total national budget for procurement o f goods and services. Giventhat the procurement units at public institutions are incharge o f applying the stipulations o fthe DR-CAFTA, it i s necessary to initiate a nationwide, intense process to train all the staff inthe units covered by the treaty. The purpose here i s to inform these individuals about the treaty and ensure that they are inthe positionto effectively apply the principles and dispositions established therein. h h v e .-C e s I I 8 .I d : 3 E a e, 2 3 .-.-* in e, Y 9 i 0 Q h Y e C a 8 e, B Q P ..t Q e t CostaRica CPAR 94 ANNEX IV. EVALUATIONOF THE COMPRAREDSYSTEM BANCO INTER AMERICANO DE DESARROLLO BANCO MUNDIAL COSTA RICA EVALUATION OF PROGRESSINE- GOVERNMENTPROCUREMENT April 2005 CostaRica CPAR 95 This document waspreparedfor theInter-American DevelopmentBank by Jorge Enrique Vargas, International GovernanceSolutions, varaas(i3,intaov.com. Copyright 02005. All rights reserved. Member Countries and their government agenciesmay reproduce this text withoutprevious authorization, but should make referente to theprimary source. Terms and Conditions Theviews stated in this document are of exclusiveresponsibility of his autor and under no concircumstancesmay be interpreted as a oflcial position of the WorldBank or theInter-American DevelopmentBank. The WorldBank and theInter-American DevelomentBank do not ensure the accuracy of the information included in this report and do not accept any responsibility for the use that can be made of it Thereferences to specificproducts, specifications,processes or services by their comercial name, brand, manufacturer or alike does not constitute or imply support, recommendation or advocacy on thepart of the Inter-American DevelopmentBank or the WorldBank. CostaRica CPAR 96 CONTENTS 1 EXECUTIVE . RECOMMENDATIONS).................................................................................................. AND SUMMARY (PRINCIPAL CONCLUSIONS 98 1.1. Leve1 of Preparation Observed for Government Procurement with Electronic 1.2. Principal Findings and Conclusions......................................................................... 199 Support....................................................................................................................... 98 1.3. Principal Ris ks......................................................................................................... 1.4.Principal Reco mmendations .................................................................................... 101 103 2. INTRODUCTION TO GOVERNMENT PROCUREMENT WITH ELECTRONIC 103 2.1. Glos sary ................................................................................................................... SUPPORT(E-GP) ................................................................................. 2.2. Basic Characteristics of e-GP .................................................................................. 104 104 2.2.1 104 2.2.2. Objetives of e-GP......................................................................................... .Concept ........................................................................................................ 2.2.3. The e-GP Portal............................................................................................ 104 2.2.5. Basic Components ....................................................................................... 107 2.2.4. Areas o f e-GP............................................................................................... 105 106 3. CHARACTERISTICS OF THE e-GP EVALUATIONS INCOSTA RICA..................107 3.2. Summar y ofthe Methodology ................................................................................ 3.1. Objetiv es of the Evaluation...................................................................................... 107 108 3.3. Entities Consulted .................................................................................................... 108 4. A DETAILED ANALYSIS OF THE EVALUATION'S FINDINGS, CONCLUSIONS AND RECOMMENDATIONS....................................................................................... 109 4.1. GO VERNMENT LEADERSHIP 4.1.1. Desirable characteristics according to international experience..................109 ............................................................................ 109 4.1.2. Findings........................................................................................................ 4.1.3. Risks............................................................................................................. 109 110 111 4.2. PO LICIES................................................................................................................ 4.1.4. Conclusions and Recommendations............................................................ 111 4.2.2. Findings.,...................................................................................................... 4.2.1. Desirable characteristics according to international experience..................111 111 4.2.3. Risks............................................................................................................. 112 112 4.3. STRATEG I C AND OPERATIONAL PLANNING ............................................... 4.2.4. Conclusions andRecommendations............................................................ 113 4.3.2. Findings........................................................................................................ 4.3.1. Desirable characteristics according to international experience..................113 114 4.3.3. Risks............................................................................................................. 115 4.4. L EGISLATION AND REGULATION................................................................... 4.3.4. Conclusions y Recommendations................................................................ 115 116 4.4.2. Findings.,..................................................................................................... 4.4.1, Desirable characteristics according to international experience..................116 4.4.3. Risks............................................................................................................. -116 117 4.4.4. Conclusions and Recommendations............................................................ 118 CostaRica CPAR 97 4.5. DEVELOPMENT OF HUMANRESOURCES...................................................... 4.5.1. Desirable characteristicsaccording to international experience..................118 4.5.2. Findings........................................................................................................ 119118 4.5.3. Risks............................................................................................................. 119 4.6. INTEGRATION OF THE PRIVATE SECTOR ..................................................... 4.5.4. Conclusions and Recommendations............................................................ 120 4.6.2. Findings........................................................................................................ 4.6.1. Desirable characteristicsaccording to international experience..................121 121 4.6.3. Risks............................................................................................................. 122 123 123 4.7. STANDARDS.......................................................................................................... 4.6.4. Conclusions and Recommendations............................................................ 123 4.7.1. Desirable characteristicsaccording to international experience..................123 124 4.7.3. Risks............................................................................................................. 4.7.2. Findings........................................................................................................ 126 126 4.8. INFRASTRUCTURE AND INTERNET SERVICES ............................................ 4.7.4. Conclusions and Recommendations............................................................ 127 4.8.2. Findings........................................................................................................ 4.8.1, Desirable characteristicsaccording to international experience..................127 127 4.8.3. Risks............................................................................................................. 128 4.9. S YSTEMS INOPERATION................................................................................... 4.8.4. Conclusions and Recommendations............................................................ 128 4.9.1, Desirable characteristicsaccording to international experience.,................ 129 129 4.9.3, Risks............................................................................................................. 4.9.2. Findings........................................................................................................ 130 132 4.9.4. Conclusions and Recommendations............................................................ 132 Annex 1. SELF-EVALUATIONAND METHODOLOGY .................................................. 134 Costa Rica CPAR 98 I. EXECUTIVE SUMMARY (PRINCIPAL CONCLUSIONS AND RECOMMENDATIONS) This report contains the results o f an analysis o f Costa Rica's level o f preparation for e- GP development. The results are based on two complementary processes: a self- evaluation conducted by high-level and executive authorities at the public and private institutions most involved in e-GP's progress and an analysis performed by specialists at the World Bank and IDBwith the support of specialized consultants. The report contains a presentation regarding e-GP, the objectives and methodology o f the study and details regardingthe findings, conclusions and recommendations. This section is a summary o fthe evaluation's principal findings, which will be examined ingreater detail inSection4. 1.1THELEVEL OFPREPARATION OBSERVED FOR E- GOVERMENT PROCUREMENT The progress ineach component is synthesized inTable No. 1. TABLE No. 1 LEVELS OF PREPARATIONFOR ELEVEL PROCUREMENT Source: Joint Self-evaluation conducted inMarch 2005. The levels of preparation are indicated on a scale from 1to 4 which are further explained inAnnex No. 1. CostaRica CPAR 99 1.2PRINCIPALFINDINGSAND CONCLUSIONS The Government o f Costa Rica in currently in the initial stage o f adopting an e-GP program. The progress made thus far has been significant and is geared towards incorporating international best practices. The second version of COMPRARED i s already ready and is more extensive and functional than its predecessor, allowing for electronic publishing o f opportunities and awards in a format that is both simple and accessible. Efforts have also been initiated to transform the rules, functions and services relative to procurement. The tool created by the Multilateral Development Banks to evaluate the degree o f preparation to apply e-GP looked at the following: 1. Leadership. The Ministry o f Finance had an important leadership role in the development and operation o f COMPRARED. However, it has yet to consolidate its overall leadership role in e-GP. This i s due to the fact that several entities have begun their own initiatives without guidance from the Ministry o f Finance. These processes run parallel to, as opposed to being integrated with, efforts to develop COMPRARED. There are several e-GP initiatives in progress. This fragmented approach limits COMPRARED's scope and reduces the efficiency o f any solution or set o f solutions. The Controller General's Office also plays a significant role in strategy development for e-GP, and i s currently conducting information cross- referencingon procurement prices and conditions inthe public sector. 2. Policies. An effort has been initiated to define a single general policy for e-GP development that is capable o f integrating executive management functions and control functions. This process is in the incipient phase. The objectives foreseen focus on transparency and fiscal savings but are weak in terms o f efficiency, effectiveness andthe impact o f government procurement on development. The lack o f objectives for effectiveness and development could affect the integral function and impact o f any e-GP implemented. Impact goals and follow-up mechanisms are neededto monitor procurement policy results. 3. Planning.No common vision exists on which e-GP system i s best for Costa Rica and how said system should be developed and implemented. Although some significant progress has been made and COMPRARED's development has been compatible with the guide map proposed by the multilateral development banks but an integral strategic plan is still needed. Without this tool, progress will lack articulation and some key aspects will not receive the necessary consideration (for example, the coordinated development standards or the habilitation of the private sector for e-GP). The lack o f a plan explains the inexistence o f quantitative goals, timelines and responsibilitiesfor the different components demanded by e-GP. CostaRica CPAR 100 Inverse auctions have been agreed upon for the short term. Prior to adopting electronic reverse auctions as a state procurement modality, in-depth studies must be conducted to determine the characteristics o f both the market and the suppliers depending on the goods chosen. 4. Legislation and regulation. Public contracting i s governed by the Law for Administrative Contracting (7494). This law was not conceived in a context that directly contemplated electronic means, but allows for their utilization and does not pose significant obstacles for e-GP development. Regardless, some aspects require a modern interpretation o f the Law's dispositions. Central Government bodies are obligated to use COMPRARED according to the Regulation o f the Law o f Financial Administration o f the Republic and Public Budgets (813 1). 5, Human Resources. Costa Rica -like the majority o f Latin American countries- has few high level human resources working in e-GP. Nevertheless, COMPRARED has received adequate guidance and technical support. Few individuals inpublic entities are specialized and hold professional titles in modern procurement. Executives conduct training activities on procurement and contracting for employees at the Central Level and are able to answer supplier questions. The Controller General's Office also conducts training and dissemination activities. There are currently no human resource development programs that focus specifically on modern public contracting, with the exception o f some efforts at autonomous entities. More in-depth knowledge on international experience in e-GP and an improved exchange o f information with countries that are more advanced inthis area are required. 6. Integration of the private sector and development of competition. The evaluation showed that the private sector's integration is barely incipient and still weak. Fees and guarantees are required inthe supplier selection process, and have become entry barriers and restrictions to free competition. 7. Standards. COMPRARED has made a step in the right direction by adopting a NSPSC as a basic coding system for both goods and services. This decision i s compatible with international practices. Inother aspects, this standard component has yet to be significantly developed. N o policy framework for standards currently exists. Working mechanisms are still needed to consolidate joint efforts among the government, private sector and specialized bodies in order to further development in this area. A free on-line supplier registry exists and is useful in efforts to inform suppliers on business opportunities; however, this does not constitute a standardgiven that it operates in parallel with registries at various sectorial entities that are not interconnected. The Government o f Costa Ricahas foreseen the introduction o fdigital signatures and certifications to further the progress o f e-GP development. International experience has shownthat this decision should betaken after special studies have been CostaRica CPAR 101 undertaken. This type o f analysis has yet to be conducted inCosta Rica, which represents a significant risk to free competition and e-GP development. 8. Infrastructure and Internet Services. The telecommunications infrastructure in Costa Rica could be qualified as intermediate by international standards. The rhythms o f expansion, nevertheless, are lower than those o f many Latin American countries due to a delay inthe implementation o f wide band for internet and the slow growth visible in cellular telephone services (due to restrictions on supply). The internet connectivity o fpublic procurement agencies and suppliers is mediuminlarge cities andtends to be low is less developed areas. Inall cases, the internet connection i s slow. Inthis context, minimumconnectivity conditions are sufficient to initiate the e-GP process, but require combining internet with voice telephone and fax. It i s foreseeable that if the future development o f e-GP i s well directed, it will stimulate rapid improvement inconnectivity. 9. Systems in operation. The COMPRARED website has the best conditions for conversion to a single portal: it publishes procurement plans, selection processes according to different modalities and the awards given. For some time now, it has been possible to obtain free base documents, which represents a laudable step forward. COMPRARED publishes the majority o f information garnered from central level public entities but has yet to include some large national entities (autonomous bodies), municipalities and the legislative, judicial and electoral branches. The inclusion o f said entities will increase rather than diminish autonomy, and should produce highly positive impacts on governability, efficiency and development. The new version o f COMPRARED seems to be compatible with the requirements for the use o f e-GP inloan, credit and donation procedures before the Multilateral Development Banks. It would be recommendable to conduct an in-depth evaluation on this compatibility. COMPRARED operates ina Web-Web environment and requires no specialized hardware or software. Plans include connecting COMPRARED with SIGAF so that both systems can exchange information. To date, no mechanism has been defined for COMPRARED's future financing and the general operation o fthe e-GP systeminCosta Rica. 1.3PRINCIPALRISKS Costa Ricahas made positive step towards e-GP development, but its successful and massive adoption is still not guaranteed. Several key risks exist that must be taken into account to guarantee the success anticipated, including: CostaRica CPAR 102 The principal risk more than likely lies inthefiagmentation of initiatives. Inthe e-GP ambit, it is preferable to provide a single solution, although not necessarily technically optimum, to concentration on two or more solutions, which although technically solid, operate in parallel. When parallel e-GP systems are adopted, objectives and benefits are limited to the point that the government, suppliers and national development are negatively impacted. The primary consequence o f this fragmentation is that by not including autonomous bodies (and particularly ICE and CCSS), COMPRARED only covers one fourth o f government procurement. The informative phase o f tendering does not require in-depth planning. However, the subsequent steps in e-GP development imply high levels o f risk and complexity. As such, a rigorous and consentuated strategic plan i s needed to direct simultaneous progress on the different aspects required. The lack o f a strategic plan o f this nature may mean that some highly important issues have not been given the appropriate consideration. By adopting inverse options ina short term, it may be possible to cover 15% o f total government procurement. This alternative could negatively impact the private sector, sectorial development and prices in the long-term it is not based on in-depth knowledge -still not available- o fthe market and the economic behavior o f suppliers. There is currently no multi-dimensional strategy for human resources development (continuous training for directors and operators o f government procurement and suppliers with different profiles, professional training at different levels, massive dissemination throughout the community, focalized dissemination for decision makers, etc.). Progress in this process will depend on the management o f human resources and the legitimacy achieved inthe community. Standard development is still weak and this debility affects the future progress o f e- GP. The phases subsequent to the informative stage will only by viable and efficient ifprocesses standards exist (documentation and steps), along with market standards (single registry o f the suppliers and the extensive use o f international coding) and system standards (security, portability and interoperability). The supplier selections processes have become slow, costly and inefficient due to unnecessary requirements and discriminatory practices o f filtering entries. These limitations cause considerable inertia and impede the adoption o f more transparent and efficient processes. The use o f digital signatures and certijkation -which at first sight seems to be the optimum option and an evident necessity- have not been successfully applied ine-GP systems throughout the world; as such, it is necessary to determine potential risks in order to avoid errors and unnecessary costs that other countries have experienced in their e-GP efforts. CostaRica CPAR 103 o It would be discriminatory to adopt an e-GP model based exclusively on Internet. Itis necessary to include strategies for voice telephone, fax andtext messaging use. o COMPRARED is designed to be a single system for procurement butruns the risks of becoming a parallel system due to the fact that many entities maintain their own portals and specijk registry and payment requirements for participating in supplier selections. 1.4PRINCIPALRECOMMENDATIONS Inorder to face the risks we recommendthe following tasks, some ofwhich mustbe implemented inthe initial stages: 0 Consolidate a single leadership to coordinate the different initiatives inprogress. 0 Develop a strategic e-GP plan, that takes into consideration the necessities of the Central Government, autonomous bodies, municipalities and control systems. 0 To consolidate the institutional environment for the overall development of government procurement and e-GP. Coordinate procurement and control functions into a single system that can meet all needs for information exchange. 0 Progress in the standardization and simpliJication o f tendering documents and processes. 0 Prior to adopting inverse auctions, conduct market studies to evaluate overall viability andto determine the specific sectors where the modality can be applied. 0 Research the implications o f digital signatures and certijkates with regard to costs, the soundness o f the security system, competition development and compatibility with international agreements such as the FTA (Free Trade Agreement), regional agreements and agreements regarding procedures made with the Multi Lateral Development Banks. 0 To consolidate COMPRARED as a single portal by eliminating the information on contracting found on entity portals or by transforming said information into an electronic copy within COMPRARED (which will constitute the original copy in all cases). 2. INTRODUCTION TO GOVERNMENT PROCUREMENT WITH ELECTRONICSUPPORT (E-GP) CostaRica CPAR 104 2.1. GLOSSARY Government Procurement: Process to plan, select suppliers, contract and manage the execution o f goods, services or works conducted with the public budget. Quotes or online purchases ("Purchasing"): Procurement on low cost goods and services that are generally purchased in large quantities. The process i s based on competitive proposals from which procurement entities can choose. e-GP: Universal acronym for electronic government procurement, meaning government procurement with electronic support. ProcurementEnvironment. It refers to the predominant focus inthe country regarding procurement processes. Generally it refers to an integrated but manual system that has technological support insome areas. Tendering("Tendering"): Procurement of highvalue andlow frequency goods, services and works according to conditions and requirements set forth by procurement entities. Suppliers draw up proposals that are subjected to a competitive process. This process includes common use contracts and inverse tendering. 2.2. BASICCHARACTERISTICOF E-GP Many countries around the world have developed -with greater or lesser success- e- GP processes that respond to different visions and models. The Multi Lateral Development Bank has drawn on these experiences to identify the key elements o f a successful process. Next, we will look at these characteristics. 2.2. 1 Concept Government Procurement with Electronic Support -e-GP- refers to the processes used by the government to select suppliers and manage contracts. These processes are based on the use o f information technologies (particularly Internet). E-GP includes common standards, the simplification o fprocedures, inter connected data bases and direct access to information for procurement entities, suppliers andthe community, allowing for greater transparency, efficiency and competition inprocurement. 2.2.2. Objectives of E-GP E-GPcan be directedto achieve the following basic objectives: Governability (transparency and equity). With the aid o f electronic procedures, all procurement procedures, (plans, calls to participate, awards, contract execution) are visible to everyone at the same time, permitting equitable access for suppliers and maximum transparency. Based upon this, it i s possible to construct indicators and make comparisons to guarantee accountability and stimulate efficiency. It is also possible to CostaRica CPAR 105 develop competition because trust is generated and new supplier participation i s stimulated. Efficiency and effectiveness. E-GP simplifies, standardizes and integrates processes. This helps to reduce administrative costs for the government and suppliers and decreases the duration o f procurement processes. At the same time, e-GP stimulates competition and facilitates the integration o fprocurement; it can also significantly reduce the prices o f goods and services. Subsequently, public investment becomes more efficient and it i s possible to reduce the tax payer burden. o Balanced Development. E-GP enables government procurement to stimulate competitiveness and productivity, increasing asset protection against monopolies, facilitating the development o f small and medium business (due to a reduction in private sector market entry restrictions), and stimulating the local and regional economy (by taking advantage o f size and location). Additionally, it facilitates international integration for less developed countries. Ifthe objectives mentionedabove are mutually compatible, the isolated search for one or the other fails to automatically lead to the achievement o f the three. For example, an increase in transparency and accountability can be achieved by being less efficient by increasing the number o f steps and costs; greater efficiency based on large volume contracts can eliminate competition, destroy small and medium business and reduce development dynamics. Ingeneral, developing countries focus more on governability (transparency), while more developed countries value efficiency and effectiveness. Some nations -particularly developed countries- are interested in the third objective o f balanced economic development. 2.2.3. The e-GP Portal E-GPnormally operates with a support of a single Internet Portal that is utilized by the entire government structure and which permits on-line registry o f suppliers and government procurement bodies, public access to the norms, policies and contracting guides, on-line information on upcoming and current procurement processes, selection processes, purchases, payment and information on contracts (winners, costs, duration, execution), The Procurement Portal is accessible to suppliers, government buyers, and the community and provides information on procurement and allows users to conduct on-line procurement procedures. Costa Rica CPAR 106 2.2.4. Areas of E-GP E-GP andthe Single Portal generally cover three basic areas o f procurement andpublic contracting: o E-tendering: individual or high volume procurement o f high value goods services and works. The selection process begins when a public entity issues a set of base documents for tendering that contain information on the process. Suppliers then present adequate proposals according to the specific parameters established in said document. E-quotes or on-line transactions: this refers to standardized goods, services and works that have a low unit value and which are procured in large quantities. The procurement process begins with an on-line announcement for quotes and is conducted in an open market for supplier tenders. Based on previously established criteria, public entities use on-line procedures to select the best quotation, order delivery, and pay through on-line transactions. o E-Management of contracts: execution with electronic support and processes for tender reception, payments, contract liquidation, management o f guarantees, audit control, evaluation and consolidation o f information for the public dominion and for future procurementdecisions. Diagram No. 1contains a schematic representation o f a mature e-GP Procurement Svstem. , CostaRica CPAR 107 In order to achieve its objectives, e-GP is normally connected with other state management systems to identify persons, register business, manage the budget and conduct oversight. E-GP has data bases with information on market behavior and patterns in public procurement. This information i s used by the governments in specialized analysis. Suppliers can use this information to improve their decision makingprocesses. 2.2.5 Basic Components E-GP processes operate with the support o f the data base components. The components represent the set o f conditions for governability, management and technological support required inany successful and sustainable approach to e-GP. These include: Efficient government leadership. Specialized humanresources. Strategic and operational planning. Specific and complementary legislation. Orientation, manual, regulation and control. Infrastructure for communications and Internet services. Standards. Integrationo fthe private sector. Procurement systems and operation. 3. CHARACTERISTICS OF THE E-GPEVALUATION INCOSTARICA 3.1 OBJECTIVESOF THEEVALUATION o To support, government and non-government bodies and private entities in the country to collectively build a common vision on the level o f preparation for e-GP development, based on the general procurement environment and the state o f other processesthat converge with e-GP. o To facilitate areview o fthe progress o fe-GP processesthat is alreadyunderway. o To facilitate the development o f an integral government vision on the country's progress ine-GP andprovide a useful instrument to set progress goals. o To provide and objective baseto conduct international comparisons on e-GP progress inother countries, inorder to facilitate cooperation andprocess integration. o To show the Inter American Bank and the World Bank where to concentrate their support and financing for e-GP development. Costa Rica CPAR 108 3.2 SUMMARIESOF THEMETHODOLOGY The evaluation inthis document is the result o ftwo complementary evaluation processes: 1. Directed Self-evaluation. Executives and high level employees at the public and private entities most involved in e-GP development jointly analyzed e-GP's nine components and the sub components o f each by utilizing a self-evaluation format to determine the level o f preparation for e-GP. The format was prepared by the Group for the Harmonization o f Procurement with Electronic Means, whose members are the Inter American Bank, The Asian Bankandthe World Bank. Following this exchange o f experiences and knowledge, the participants expressed their vision on the level o f preparationor progress inCosta Rica with regards to e-GP. Their analysis served as the basis o fthis evaluation. Annex No. 1 contains a detailed description o fthe self-evaluation methodology. - Expert analysis. Experts from the World Bank and the Inter American Development Bank, with the support o f specialized consultants, conducted an analysis o fthe results of the self-evaluation to identify critical aspects in the framework of the Country Procurement Assessment Review-CPAR- and complementedthe main conclusions with interviews o f the most relevant actors. 3.3 ENTITIESCONSULTED Thirty seven executives and high level officials from the following private and public entities participated inthe joint evaluation: 1. Ministry o f Foreign Trade 2. Ministry o f Public Education 3. Ministryof Finance 4. Ministry o f Public Works and Transport 5. Office o f the Controller General o f the Republic 6. Social Security Office of Costa Rica 7. Costa Rican Institute o f Aqueducts and Sewage 8. Costa Rican Institute o f Electricity 9. Municipality o f San Jose 10. Radiographic Association o f Costa Rica S.A. 11. Costa Rican Chamber o f Information Technologies andCommunications 12. Chamber Industries CostaRica CPAR 109 4. A DETAILED ANALYSIS OF THE EVALUATIONS' FINDINGS, CONCLUSIONSAND RECOMMEDATIONS This section analyzes the components that have the greatest influence on government procurement. For each, the following is presented: o a brief description of the desirable characteristics of e-GP incountries with a mature system; o asynthesis ofthe principalfindings relative to the current situation; o the risks of embarking on e-GP without resolving certain critical restrictions; o the mainconclusions derived from the findings andthe identificationofrisks; o The most important recommendations. 4.1. GOVERNMENTLEADERSHIP 4.1.1. Desirablecharacteristicsaccordingto internationalexperience In countries that have successfully adopted e-GP, the government has generally had a leading role in the planning, financing, administration and backing of the system's implementation in order to create an environment in which procurement modernization and e-GP change is consolidated inan integral and sustainable manner. Government leadership can be seen in: o the degree to which a shared vision and national objectives regarding procurement have beenarticulated, o the existence of anintegral strategic planfor implementation ofprocurement reform, o the development of aprofessional career inprocurement, and o the guidance government agenciesprovide regarding procurement issues. 4.1.2. Findings COMPRARED is an informative portal on public contracting that is being developed according tO international practices. This system has the capacity to become the cornerstoneo f e-GP development inCosta Rica. The Ministry of Finance (Head Office for Goods and Administrative Contracting) plays and important leadership role in driving e-GP development in the Executive Branch, particularly with regards to COMPRARED. The Ministry of Finance's leadership role with regard to COMPRARED has not been consolidated as a basic guide for e-GP development in Costa Rica given that various entities have begun their own e-GP processes without guidance from the Ministry of CostaRica CPAR 110 Finance. These systems currently are not integrated with and instead run parallel to COMPRARED. The benefits o f e-GP will be maximized if it becomes a single source o f information relative to all government procurement. This systemmust be capable o f providing on-line coverage for the entire universe o f procurement procedures. The objective is to achieve greater transparency, stimulate competition, and better direct procurement policies while strengthening control. Other goals include gaining efficiency and effectiveness. If the option to choose is opting for multiple systems rather than concentrating information and procedures within a single portal, the resulting fragmentation will negatively affect costs, reduce impact and compromise e-GP development. Aconsentuated vision has yet to be defined regarding the government procurement system that the country wishes to develop and the e-GP model that should be chosen for application throughout the public sector. This lack o f a common vision has contributed to the absence o f a common strategy and single leadership. Efforts to consentuated decisions with key stakeholders to modernize procurement and develop e-GP are still incipient. The initiatives undertaken thus far have failed to include all key players in e-GP development: autonomous entities, various public entities from the distinct branches o f state, municipalities and supplierorganizations. 4.1.3. Risks The fragmentation o f initiatives represents the main risk in efforts to modernize administrative contracting and develop e-GP in Costa Rica. Inthe ambit o f e-GP, a sole solution is preferable, although not necessarily technically optimum, to utilizing two or more solutions that are technically solid but which are developed in parallel. The dispersion between alternative systems o f e-GP adopted by various authorities significantly limits the achievement o f objectives andbenefits, producing negative impact on the government, suppliers and national development. A consequence of fragmentation is that by not including autonomous bodies (and particularly the ICE and CCSS), COMPRARED only covers one forth o f government procurement. Some entities believe that e-GP i s simply a matter o f incorporating computer technology within traditional processes rather than an integral strategy to improve the entire procurement system. As such, risks exist that e-GP will be utilized as a technological tool rather than as a process for structural change. Special studies are needed to provide insight on these matters. If this introspection is lacking, any efforts made may become obstacles to the development o f free competition and e-GP. The lack o f consensus agreement amongst certain key actors inprocurement such as the Controller General o f the Republic, the Legislative Branch, the Judicial Branch and the CostaRica CPAR 111 municipalities is a threat to the celerity, integrality and sustainability o f the e-GP implementationprocess. 4.1.4. Conclusions and Recommendations Costa Rica has made important progress in defining a leader entity in the executive branch to develop procurement in e-GP. However, the Ministry o f Finance should consolidate this leadership through a widely consentuated process. Sole leadership and consensus processes will facilitate the coordination o f initiatives that are currently underway and will be useful in the search for appropriate solutions to the needs o f all public entities and branches. This leadership can ground its efforts on the basic "picture" o f the e-GP system as envisioned by the principal actors in the process. This basic reading can become a common vision that will be adopted by political entities, public procurement entitles, the private sector andthe community ingeneral. 4.2.POLICIES 4.2.1. Desirable characteristicsaccording to international experience The policies (the ways that the government proposes to achieve specific impacts) provide direction and meaning to efforts to transform procurement. Policies include objectives, define basic criteria (such as cost-benefit analysis) and create a favorable environment for open and effective competition, risk management, support for small and medium business, regional economic development, common use contracts or integrity and ethics. These policies should also be applied to procurement system development and its interfaces with other corporate systems. Policies must be clear on the results expected and flexible enough (with regard to procedures) to adapt to different procurement levels and types. This approach seems to be more successful than adopting a set o f rigid regulations that stifles project executors in the decision making process. The policies must be understood by all "affected" parties and can be monitored independently to determine compliance. Changing policies to coincide with change tends to be a simpler process than changing legislation. 4.2.2 Findings General Policy. Efforts have begun to define an overall, single policy for e-GP that i s capable o f integrating executive management functions and control functions. This CostaRica CPAR 112 process i s in the embryonic stage given that it still lacks a common vision and requires development through consensus mechanisms. The objectives of government procurement. Inthe ambit o f procurement, Costa Rica gives special emphasis to objectives for transparency, the eradication o f corruption and fiscal savings. These objectives are indispensable and, given the current situation o f the country, are very useful in efforts to achieve the support needed to modernize the system. Nevertheless, modernization in procurement and contracting requires objectives that focus on the following: efficiency, (celerity and opportunity), stimulation o f private sector competition, efforts to drive development o f small and medium companies inthe country, andthe promotion o f regional development. Impactgoals. Goals to verify and control the impact o fprogress have yet to be defined. These goals should focus on: progress relative to transparency, price decreases, savings due to the elimination o f administrative costs, as well as the development o f competitiveness and productivity, etc. Successful efforts to follow up on progress require a clear definition o f goals and the existence o f a base line. 4.2.3 Risks Interest in transparency i s positive and has helped concentrate initial emphasis on consolidating e-GP inthe COMPRARED portal. Nevertheless, this interest has impeded efforts to develop awareness on the dynamizing potential o f government procurement as an instrument to stimulate competition, competitiveness and productivity as well as promote balanced business andregional development. It i s important to keep inmindthat these objectives are also important in efforts to achieve a high impact system with maximum legitimacy. The emphasis on transparency to the exclusion o f other objectives can lead to a government procurement system that privileges a few large businesses to the detriment o f others. This tendency has been noted incountries inwhich inverse auctions are common and exclusive contracts inclosed "market places" are frequent. The lack o f impact goals leads to an excessive concern with procedures as opposed to focusing on results such as efficiency, the effects o f development and the potential capacity that procurement has to drive economic growth and balanced development. 4.2.4 ConclusionsandRecommendations Procurement modernization has begun. There i s a bias inthe objectives that places more emphasis on transparency than on efficiency and the impacts on business and regional development. More impact goals are necessary and follow-up mechanisms must be developed to monitor procurement policy results. As such, it i s recommendable to: o Incorporate objectives for efficiency and industrial development, regional development and the development o f small and medium business. These objectives must be accompanied by procedures that facilitate the achievement o fthese goals. CostaRica CPAR 113 o To define -in quantitative terms- the impact goals for government procurement and the e-GP system and create an independent mechanism for supervision and the periodic dissemination o f the results obtained. 4.3STRATEGICAND OPERATIONALPLANNING 4.3.1 Desirable characteristics accordingto international experience Good planning and orientation are essential to any e-GP strategy. The role to plan and guide electronically based services i s complex and ~ h a l l e n g i n g ~ ~ . Experience has shown that strategic planning should be based on a clear evaluation o f the current context for procurement. Based on this information, the Administration defines the direction, scope and focus as well as the stages required to meet its plans. The Strategic Implementation Plan includes an e-GP strategy that i s articulated with other plans for e-Government and e-Commerce. These plans must be developed through consensus and with the participation and support o f the most relevant "affected" parties with regard to government procurement. Inthe public sector, said parties fulfill roles in finance, planning, auditing and control, legislative development, regulation, procurement management, education and training as well as public sector administration. With regard to the private sector, affected parties include: industry, professional associations, supplier groups and oversight bodies. Operational planning and direction for government procurement should support agencies in their efforts to execute procurement responsibilities. Clear guides and procedures that can be translated into actions and consistent results are necessary. Procurement guides and processes should be well documented to help users better understandand evaluate their knowledge of relevant procurement topics. Contract results are controlled and communicated and action i s taken when necessary. The data consolidated on procurement must be available to support market understanding and should be usedas a basis for future decisions on government procurement. Public information must be available on the procurement process and its results. The process should include sufficient administrative controls to ensure effective compliance with policies and guidelines. Risks management should also be determined, and probity, performance auditing and quality based management must be dealt with in order to conduct corrective actions when necessary. Independent external auditing can take place inany agency engagedingovernmentprocurement. Procurement staff should have access to competent advice on procurement matters. Procurement responsibilities are generally delegated to government agencies along with a 45 See "e-GP GuiaparaPlaniJicar su Implementacidn", availableat www.mdb-epp.org. - CostaRica CPAR 114 mechanism (i.e. accreditation) intended to help such agencies meet compliance with performance standards required. 4.3.2. Findings The first steps towards procurement modernization and e-GP development inCosta Rica have been favorable. But the process has entered higher risk stages whose complexity requires strategic and operational planning. Inthis aspect, the current level o f preparation inCostaRica is following: Analysis of the procurement situation. Evaluations are available on legal and administrative aspects o f procurement and on some price behavior. Direct quantitative information i s still lacking which makes if difficult to conduct an in-depth evaluation o f the prices the State pays ineach sector and determine the costs o f procurement processes to suppliers and procurement agencies. Information is also needed to effectively evaluate payment time lines, differences in contracting behavior between agencies, and market behavior. The Controller General o f the Republic has begun an effort to develop a system to cross reference information on prices and conditions. Strategic procurement plan and e-GP. There is no strategic plan that - through the situation analysis mentioned above- establishes the characteristics o f the general procurement system and electronic system desired, the impact objectives, quantifiable goals, intermediate results, the guide map to achieve the same, time lines and responsibilities. Unified procedures. There are different interpretations o f norms and dispersion in the practices and methods used for procurement or contracting at public entities. There are substantial differences in the ways that different entities contract for the same good or services. Contract Management. There is currently no system capable o f managing contracts (delivery, quality, payment, results). Eachentity does an autonomous and specific follow- up on contract execution relative to goods or service provision. There are no basic guidelines on minimum responsibilities, delivery conditions, guarantees, etc. There is currently no on-line center to follow up on contracting practices. Overall monitoring of procurement. Mechanisms have been implemented to obtain consolidated results on procurement patterns and performance. COMPRARED provides information on procurement performance to support decision makingprocesses. Reverse Auction. Costa Rica plans to implement, in the short term, inverse auctions similar to those used in other Latin American countries. These auctions are capable o f covering 15% o f the government's total procurement. No market studies are currently available to support the decisionto implement this option. CostaRica CPAR 115 4.3.3 Risks The lack o f strategic plans i s one o f the principal risks for procurement modernization and e-GP development. This produces three undesirable consequences: i)the lack o f a guiding instrument that facilitates the articulation o f unlike processes -with divergent responsibilities and time frames- into a common and articulated development effort; ii)in turn, progress 'is uneven for the different components and sub-components of the e-GP development process, leading to difficulties relative to coordination, inefficiency and high costs; and iii)the fundamental topics such as strengthening o f supply and demand, the development o f standards or the creation of sustainable conditions for the system are delayed due to urgent although less transcendental matters. The lack o f quantitative information on procurement behavior impedes the development o f a base line and a monitoring system capable o f demonstrating the benefits o f procurement modernization and e-GP implementation. This monitoring is essential to measure the benefits to be derived out o f them, calculate the savings that can largely justify the transfer o f resources to the public procurement system and reinforce its legitimacy inthe eyes o f the community. The heterogeneity of procurement and contracting process inpublic entities is one of the worst enemies o f e-GP development, which is, par excellence, a set o f standardized and common processes. All progress related to the unification o f legal interpretations and the homogenization o fprocedures i s essential to e-GP development. The use o f inverse auctions instate procurement has hadpredatory effects on competition in various countries due to the fact that these procedures provide fertile grounds for collusion. For this reason, many countries have decided that inverse auctions are undesirable andhave instead concentrated on strengthening common use contracts. The lack on follow-up on procurement limits market knowledge, which is essential to designinggoodprocurementpolicies. 4.3.4. ConclusionsandRecommendations The lack o f an integral and consentuated strategic plan impedes e-GP development in Costa Rica. The lack o f quantitative information and the procurement situation is troubling giventhat the system needs a baseline and a monitoring system that indicate the impact o f implementedprocesses on savings, efficiency and effectiveness. The dispersion o f contracting practices inpublic entities neutralizes much o f e-GP's potential. Next, we will look at ways to strengthen strategic and operationalplanning. o Establish a base line with quantitative indicators on procurement behavior and create a monitoring system o f said indicators that provides information on impact in terms of cost, prices, time frames and quality; to propose goals for results based on the real situation and plan subsequent actions. CostaRica CPAR 116 o To begin elaboratinga strategic planbased on the situation analysis mentioned above and define, indetail, the characteristics ofthe e-GP system desired, the objectives and quantifiable goals, intermediate achievements, the guide map to achieve the same, time frames and responsibilities. This i s an essential mechanism to ensure that all o f the actors in e-GP and the community be aware o f the direction efforts are taking in order to secure ample support and cooperation from all concerned. o To begin standardization o f procurement process in the public sector prior to incorporating electronic means. o In-depth studies on market characteristics andgoods suppliers that have beenselected for reverse auctions. This information should be used as input to analyze reverse auction before any decision towards its adoption i s made. 4.4. LEGISLATIONANDREGULATION 4.4.1 Desirablecharacteristicsaccordingthe internationalexperience In countries where e-GP is better developed, legislation tends to be open to change and the respective regulatory entities are generally independent and possess the capacity to exercise their functions. Legislation. The e-GP strategy is governed by a set of direct and indirect norms. The legal framework must allow for change without the need to change laws; legislationthat permits the government to try out and change policies is more advantageous to e-GP development. Specific legislation is needed that deals with new topics such as electronic commerce, authenticationo f signatures, privacy and data security. Regulation. Regulation is the key factor in defining the integrity, equanimity and effectiveness o f government procurement. Regulation i s much more than "rules". In fact, it includes basic procedural norms, good practice management, accreditation, management by results and internal and external auditing o f bothnorms compliance and results. There are independent regulatory bodies that have the authority to define and monitor regulations, establish policies and procedural guides, act as referees in procurement disputes, manage accountability o f the agencies responsible for public procurement, and conduct studies on procurement issues. Independent tegulatory agencies have frequently the ability also to conduct audits on government agencies and secure that good practices in procurement are adopted. 4.4.2. Findings Direct Legislationon Procurement. Public contractingis directed by the Law for Administrative Contracting (7494). In general, this law provides a reasonable CostaRicaCPAR 117 framework with which to initiate procurement modernization and e-GP development, despite the fact that some dispositions, although applicable at the time they were written, no longer apply due to progress in technology. A modern interpretation o f this law will help overcome these restrictions. Direct Legislation on e-GP. The regulations o f the law for Financial Administration of the Republic and Public Budgets (8131) stipulate that all systems established by the Administration, including COMPRARED, must be used by all Central Government bodies. This legislation can be used as the base to elaborate regulations that favor standardization and simplification processes and reduce some superfluous procurement requirements through the use o f electronic support. Related Legislation. The general legislation o f the country hasjust begunto adapt to e- Government processes ingeneral and to e-GP inparticular. Incipient legislation exists on procurement topics (Le. privacy security, online payments, interoperability o f data bases, etc.). International Harmonization . To date, no efforts have been made to coordinate procurement laws and practices with trade treaties and other international agreements. Surely this will be a priority in the framework for the free trade agreement that the country i s taking part in. Regulating Agencies. The functions o f the regulatory agencies o f the Executive Branch corresponds to the Ministry o f Finance, which has the competence to regulate, guide, train, accompany and oversee contracting processes. Control and auditing. The Controller General o f the Republic controls and supervises government procurement agencies. This control i s essentially numerical and legal, i s ex- post, and i s accompanied by competences to sanction public agents. 4.4.3. Risks The law proposes some restrictions for e-GP, but ingeneral, makes it viable. Experience in Latin America shows that, when attempting to initiate e-GP, efforts to advance the system by adopting a more modern interpretation o f the current legal framework tend to be more successful than attempting to pass new legislation. There are two reasons why this is so. First, when countries lack a common vision o fthe public procurement system and e-GP, it is typical to find significant heterogeneity o f visions inthe legislative branch that can lead to an excessively complex and sometimes contradictory system. Second, there i s a tendency for laws related to procurement and contracting to include procedures and details. This option, which i s often undertakento drive modernizing changes, carries with it the risk that legislation will become obsolete due to the growing speed o f technological change and the unpredictability associated with the same. This will soon become a restriction to any modernizationefforts. Costa Rica CPAR 118 4.4.4. Conclusions y Recommendations The Administrative Contracting Law has some limitations in terms o f e-GP but, in general, allows for significant progress. In consequence, the following main recommendations should be taken into consideration: o To maintain and deepen the effort that the Ministry o f Finance has made to make progress inthe current legislative framework andpropitiate modern interpretation. o To include, an in-depth analysis of the changes required inlegislation related to e-GP development inthe strategic plan. o To strengthen the capture anduse of information generated byprocurement processes to use the same as the basis o f monitoring and control activities. 4.5DEVELOPMENT OFHUMANRESOURCES 4.5.1 Desirable characteristics accordingto international experience Countries that have successfully adopted e-GP have made human resource development major priority. O n the contrary, the lack o f a human resource development strategy has always been a determiningfactor infailure. Best practices inhumanresources development show that: 1. There has been a massive dissemination o f the characteristics o f the change process; this effort i s maintained untilthe public is aware and has lent support. 2. Procurement management has been professionalizedto a stage o f permanent training and accreditationof: o procurementmanager, o personnel with procurementresponsibility. 3. There has also been a noteworthy effort to provide education and training to all involved parties, including: o Political leaders, o executives andhighlevel officials inthe public sector, o suppliers at all levels, o business associations inthe private sector andworkers, o oversight bodies, o the media. CostaRica CPAR 119 4. The leader government agency has public officials and consultants who have expertise andknowledge onpolicy, legislation, technology and management. Inthis ambit, the strategies adopteddiffer as the programs for education andtraining can be provided by government agencies, private sector organizations, third parties or by a combination of actors. 4.5.2 Findings Massive Dissemination. COMPRARED has been the object o f massive dissemination campaigns. Nevertheless, the common citizens are unaware that the focus on government procurement has changed and as such legitimacy is lacking. Efforts must be made to maintain and reinforce the dissemination strategy. Professionalizationof Government Procurement. The Personnel of procurement units and procurement office of public entities have low levels of professionalization. Procurement departments do not always have specialized personnel and are often not managed by specialists. No certification mechanism currently exists for dependencies that conduct procurement. Training of Buyers and Sellers. The Ministry of Finance and the Controller General's Office have training programs on procurement in general and on the use of the COMPRARED portal. Those that have received this training consider it useful and functional. Coverage is still partial and is generally concentrated in the capital and in central government entities. Human Resources in the Leader Entity. COMPRARED has highly qualified team in many areas. However, it i s incapable of managing all the challenges that system implementation implies. Costa Rica does not have a physical map of actors in procurement modernization and e-GP. COMPRARED has analyzed the e-GP system of many countries but permanent contact to exchange information on international experiencehas beensporadic. 4.5.3. Risks E-GP's progress depends to a large extent on the changes that it propitiates in the motivation and action levels of public officials responsible for procurement, their superiors and suppliers. The weakness of this component threatens the legitimacy and depthof other changes underway. To be efficient, training inthe use of COMPRARED should be accompanied by general training programs for public officials on procurement procedures that, as was mentioned above, unify legal interpretations and practices. To the contrary, COMPRARED will be seen as a simple formal requirementthat does not changetraditional practices. CostaRica CPAR 120 The lack o f professionalization o f dependencies and procurement officials creates high levels o f resistance to change. Training that i s exclusively on-site tends to become diluted due to a lack o f continuity in timely reinforcement. The Internet should be used to provide reinforcement and help reduce risks. A lack o f training that is specifically designed for key groups (political leaders, high level officials, leaders o f professional organizations, etc.) diminishes support for and legitimacy o f the e-GP process. The lack of a mass o f experts in e-GP and contact with the best practices world wide could lead to a slower start up that i s prone to errors that have already been overcome in other areas. The current state o f e-GP inthe world makes it difficult to depend solely on replicating the model o f either one country or that o f a small group o f countries from one region. 4.5.4. ConclusionsandRecommendations The human resource development component is in the incipient stage, but there are no significant obstacles to strengthening and widening its impact. E-GP development process that i s conceived o f as an institutional process for change and transformation o f traditional practices must be seen as a significant string board for human resource training and development. For this purpose, the evaluation's principal recommendations are: o To design - based on experience- a humanresource development planthat includes inthe very least: - A massive dissemination strategy that is implemented systematically and is - directed towards the common citizen. A focalized dissemination strategy that is directed towards political leaders, high -- level officials andprofessional and union leaders. A general training strategy on government procurement for all public officials. A specialized training strategy to elevate the professional level o f public officials - working inprocurement. A strategy to train suppliersby differentiating betweenbusiness sizes and contract modalities. o To design aprofessionalization planfor procurement oflces. This plan an be based on: - Certification o f procurement offices based on compliance with a number o f minimumrequirements that include specialized humanresources. CostaRica CPAR 121 - Gradual increase in the requirements for certification, depending on how e-GP - development evolves. Periodic prices for best institutional practices. o To establish permanent links between COMPRARED and best practices of e-GP throughout the world, to stimulate the development o f a critical mass o f experts and the constant exchange o f experiences. 4.6. INTEGRATIONOF THEPRIVATESECTOR 4.6.1. Desirable characteristics according to international experience E-GP demands significant interaction with and participation o f the private sector. E-GP involves a market process where modernization, efficiency andthe transparency o f supply and demandare relevant. Private sector participation in e-GP i s not automatic. Private agents will believe in e-GP's benefits if the system i s able to increase their trust in the integrity, impartiality, consistency, transparency and efficiency o f the procurement process. Private agencies must be convinced that the system provides open access to a larger range o f commercial opportunities and provides support for training and guidance. The integration o f the private sector can be achieved in various manners, including the following: 0 The existence o f high levels o f exchange between the government and private sector regarding the e-GP topics. 0 The existence o f representation for private agents and the decision makingbodies o f the government that deal with procurement strategies and processes. 0 Easy access to information and consultancy on government policy, regulations and procedures. 0 The existence o f feedback for non-successful tenderers and an independent appeal mechanismto handle complaints. 0 Government strategies to equip the business sector to adequately develop electronic catalogues and support the integration o fbusiness systems. 0 Government strategies to ensure that suppliers, particularly the small and medium size businesses (PyMEs), have access to the e-GP market through a well distributed infrastructure and other mechanism such as Internetkiosks. 0 Government strategies to help the private sector to compete in regional and international procurement marketsand fulfill international commercial obligations. 0 Guarantees that the cost o f connecting to the government procurement system i s not dissuasive to PyMEs. PyMEs should not be at a disadvantage inthe procurementprocess. 0 Fullandeasy availability at training andeducationonprocurement. 0 Active participation o f suppliers ingovernment activities. Costa Rica CPAR 122 4.6.2. Findings According to the self-evaluation, integration with the private sector is still weak. The principal findings are the following: Participationin e-GP development: Consult. Consultation with private sector organization on procurement i s sporadic. There i s no permanent round table for discussions. o Information. Private agents can find information and guidance on COMPRARED. The services are free o f charge. o Supportfor business transitions to e-GP: There are currently no strategies to support business in the process o f change towards e-GP, such as the development o f catalogues according to adopted coding systems, easy access to hardware or software and strategies to redefine internalprocesses. Development of equality in the market. There is a special registry to promote PyMEs participation in COMPRARED. No policy i s foreseen to create the conditions necessary for PyMEs to take advantage o f competitive aspects such as deconcentration, localization, flexibility, speed o f delivery and the capacity to handle small volumes. The DGABCA has programmed a series o f activities incoordination with the Ministry o f Economy, Industry and Commerce to help strengthen the PYMES's participation and equality instate procurement. Supportfor participationand procurementpolicies: o Feedback. There is no institutional mechanism to provide feedback to non-successful tenderers inthe selection process. o Minimum cost. The costs to suppliers who participate in government procurement could be reduced. COMPRARED that does not charge to use its portal, but ingeneral and accordingto the legal framework, entities can charge for the rightto participatein selection processes. They often demandguarantees o f the seriousness o f the offer. o Demands for Ex-post requirements. The ex-post approach has not been applied to requirements (that only require the winning tenderer to present supporting documents and guarantees) as is common in countries that have been successful inprocurement modernization. These measures have produced favorable decreases in cost and have increased competition. This proposal has not been made for fear o f eventual abuses, but international experience indicates that these difficulties can be prevented and controlled through efficient management o f information regarding businesses that have been sanctioned. CostaRica CPAR 123 4.6.3. Risks Experience indicates that e-GP development will have a lower margin for error, be more successful and take less time to implement if the private sector i s included. The weak participation o f the private sector in the general design o f the system limits this sector's trust and the speed o f its integration. The lack o f policies that make it easy for PYMEs to take advantage of their competitive edge can lead to government procurement that favors large businesses. This tends to happen when only large-volume procurement i s used, services are contacted for extensive periods, and tenderers must meet very highbusiness solvency requirements, etc. The demand that all participants inthe tendering process meet certain requirements and provide guarantees instead o f applying these conditions only to the winning tenderer creates entry barriers, diminishes competition and considerably increases costs o f goods and services for the government. 4.6.4. Conclusions y Recommendations The participation of the private sector is incipient but adequate conditions exist to gradually increase the level. Inorder to facilitate the inclusionofthe private sector o fe-GP, itis recommendable: o To create a permanent round table betweenthe government and the private sector on basic e-GP decisions. o To make progress in reducing entry barriers and charges for participation in particular. o To make as much progress as possible withinthe current legal framework to stipulate that supporting documents and guarantees are required only from winningtenderers. 4.7. STANDARDS 4.7.1. Desirable characteristics according to international experience Standards are essential in e-GP. Without them, technological incorporation is a simple transfer o f traditional processes to computers; when standards are in place, procurement processes become efficient, transparent and accessible to all. Nevertheless, the process to establish standards to back electronic supported services is a complex area that i s under Costa Rica CPAR 124 construction around the This is due to the fact that e-GP is part o f e-commerce, which is one o f the most accelerated ambits o f change inthe world. Standards imply a double challenge: incorporation to make progress in e-GP while remaining attentive to any changes that are produced. The immature state o f many, ifnot the majority o f the standards upon which e-GP depends, exposes governments to special risks. These risks include the obsolescence o f systems, errors in inter-operability, high operating costs, pressure from diverse interests, functionality that operates below the optimum, limited innovation and, more widely speaking, delays in efforts to incorporate technology incommercial systems. These financial, commercial and social risks indicate that standards must be examined within the context o f government policies, legislation and e-GP leadership. In order to assume the risk, it i s important that decision makers and operations managers commit fully to addressing these problems. A general referential framework that i s ample and well defined can play a decisive catalyzing role in bringing together the principal developers o f e-GP, the different sectors and working networks to promote methodology, models and common standards. E-GP's underlying standards belong to different ambits that are not strictly technical. The identification o f standards depends on: the processes where standards will be integrated, the market inwhich they will be applied, the inherent qualities o f sustainable technologies andthe requirements o f businesses with regards to government procurement. Some areas that are applying standards include the following: o Standards for Procurement Markets for supplier registries and catalogues as well as market networks andcommunities. o Systemic Standards for Quality to ensure reliability, security, feasibility, communicability and administration. o Standard for Procurement Processes documentation, legal basis, contracting, process schedules and coordination. 4.7.2. Findings The Government o f Costa Ricahas taken a positive step forward by adopting UNSPSC as a coding system for goods and services given that this system is aligned with international practices. In other aspects, the standards components are relatively poorly developed as i s explained inthe following: 46 A vision on the importance andthe state of development of standards inthe world can be found inthe document "e-GP Estandares", available at www.mdb-egp.org. CostaRica CPAR 125 General policy on standards. The government currently has no general policy on standards. Some o f the standards that are directly related to procurement (registries, annual procurement plan) have been included in C O M P M R E D development. Other broad application standards, such as security, portability, communicability and inter- operability o f e-Government are still inthe initial revision stage. Consensus. Standards have not been defined with the participation o f the private sector. Itis necessary to keep inmindthat standards can be effectively constructedonly with the private sector's trust and experience. This carries very significant implications for the system's operations and costs. Standardsfor process (steps, documentation,contracts). Standards for steps andprocedures. As is mentioned above, there are currently no dynamics to standardize procedures and procurement agencies continue to use discretionality with regard to requirements and time frames. Procedure standardization requires homogenization and simplification. Standard base documents. Significant heterogeneity exists amongst the documents utilized for selection and contracting processes. This heterogeneity impedes transparency and can lead to corruption. Marketstandards(registries, codingsystemsfor goods and services). o Supplier registry. COM P M R E D has developed a supplier registry that helps to establish bidirectional communication so that suppliers can inquire about business opportunities according to their preferences. o Coding systemsfor goods and services. COMPRARED has adopted UNSPSC. The coding system must be extended throughout the public sector and efforts must be made to promote the adaptations needed insupplier catalogues. System standards(security, interoperability,etc.). o Security. The government o f Costa Rica plans to utilize digital signatures and certificates to support e-GP security. This decision should be made only after studies have been conducted to ensure that this measure will not become an impediment to competition and e-GP's success. Interoperability. Initial steps have been made for information sharing between public entities within a framework based on criteria for efficiency, service to the community, andreasonable security levels. International Interoperability. For the moment, there is no collaboration between Costa Rica and its international commercial partners to achieve interoperability between CostaRica CPAR 126 procurement systems. It i s probable that the Free Trade Agreements will require this collaboration. 4.7.3. Risks Delays in implementing standards greatly affect procurement development: Modern procurement and e-GP systems are, in essence, an application o f standards through the use o f technology. The first risk detected comes from the absence ofa general policy on standards and on the entity responsible o f coordinating efforts. Many standards have not beendefined and others are being developed through diverse focuses and at different times. This situation has negative effects on the speed and costs o f e-GP implementation. The lack of consensus with the private sector causes businessmen to reject applications and slows down the implementation process. It is important to remember that some standards related to e-GP oblige the private sector to make significant changes in their own procedures and information systems. Businessmenwill be more amenable to change ifthey have participatedinits definition and feel as iftheir experience and criteria have beentaken into account. Slow process in defining standards (steps, documents, contracts, increases in difficulties in achieving transparency and efficiency) decreases the participation of small and mediumbusinesses andreduces competition. The supplier registry at COMPRARED is an important step forward that may be risked if other registries are kept simultaneously in sectorial entities. The COMPRARED registry should become a single registry as soon as possible. The suppliers' massive use o f digital signatures and certificates -which at first sight seems to be an optimum option and evident necessity- has not been successfully applied ine-GP systems aroundthe world; as such, itis necessary to determine the potentialrisks to avoid error andunnecessary costs. 4.7.4. ConclusionsandRecommendations There are clearly no general policies on standards. Process standard development i s particularly urgent ( procedures and documents). On-line supplier registries constitute a good start. Processes to establish standards require significant efforts in research, consensus and development within the framework o f general policies for e-Government progress and inthe specific ambit o f e-GP. The adoption o f standards should be a priority and emphasis should be placed on the following aspects: CostaRica CPAR 127 The establishment o f a general policyframework on standards for the development e- Government, e-Commerce and e-GP. Under the current institutional framework, this task falls under the Ministry o f Finance and requires a wide consensus with diverse powers, public entities and the private sector. To establish a multi-disciplinary working group from different sectors to propose ways to simplify contracting processes, eliminate steps and requirements and simplify documents andrequirements. In depth standardization of tenderings and contracting documents through the homogenization and simplification o f legal bases and technical requirements according to the types o f goods and services procured. To convert the registry o f suppliers in COMPRARED into a single registry by eliminating all entity or sector registries. To begin studies on international experience and best practices before adopting a security scheme for the system to uploadtendering information. 4.8. INFRASTRUCTUREAND INTERNETSERVICES 4.8.1. Desirable characteristics according to international experience Infrastructure i s an important topic in e-GP. Reasonable connectivity and internet service availability provide access, reliability and support to the users. Services should be comparatively economic for the users. Interoperability must exist between systems (Internet, fax, email) so that they can be linked together (it implies the application o f some Standard techniques). The network speed and quality should help achieve this point. Hardware and software should be available and sufficient expertise should exist to provide support and maintenance to infrastructure. The term "reasonable or adequate" can be quantified through comparative data provided by a set o f preparatory evaluations that were previously applied in several countries. The Table and Annex 1 summarize some key aspects o f infrastructure and internet services and relate them to the levels o f preparation usedinthis Evaluation. The government's ITunit should use this table to develop aprofile for the nation, provinces or municipalities. This information can in turn be used to provide bases for development and to verify the responses provided by interview subjects regarding the following subcomponents. 4.8.2. Findings Voice and Data Networks. The availability o f telephone networks (fixed and mobile lines), is intermediate inlarge cities and low inrural areas. CostaRica CPAR 128 Access to telecommunications. The population's access to telephone lines is also intermediate in the large cities and low in the rural areas. Access in the country i s growing much more slowly than in the rest o f the region due to restrictions in supply, particularly with reference to cellular lines. Access to Internet. The number o f subscribers to Internet is still low in relative terms, but there has beenan important expansion inprivate centers and Internet-cafes that offer Internet services. Access Costs. Telephone and Internet costs inCosta Rica haven't shown the tendency to decline that has been observed inother countries. Speed and wide band. The country has significant restrictions on wide band. Progress on WiFi i s almost inexistent. The majority o f suppliers and state entities are connected through low speed services with limitedbandwidth. Hardware and software availability. In Costa Rica, the availability o f hardware and software is good andthe prices are similar to those found inthe international market. Availability of the expertise. Costa Rica has rapidly developed a significant degree of expertise on information technology and communications. Support services, maintenance and microcomputer repair, and small local networks operate with acceptable waiting times and reasonable costs. 4.8.3. Risks There are restrictions in connectivity for suppliers and buyers in rural areas and small businessmen in rural zones. Nevertheless, the fact that government procurement is concentrated inthe capital means that there are no significant risks to connectivity or e- GP development. In any case, limitations in access and wide band availability will require appropriate strategies. Many suppliers and municipalities have little or no experience with Internet. Ifthey are not trained on internet use, they may be resistant to participate in on-line procurement processes. Limitations ininfrastructure cause problems with connectivity. 4.8.4. ConclusionsandRecommendations Costa Rica has minimum but sufficient connectivity to initiate the e-GP process if and only if they combine Internet with voice telephone and fax. It i s foreseeable that e-GP will stimulate rapid improvement inconnectivity. CostaRica CPAR 129 Any e-GP system chosen in Costa Rica should take into account limitations in infrastructure and connectivity to establish strategies that allow it to function within the existingframework, at least inthe initial stages. These factors include: Not proposing processes that oblige the suppliers or buyers to be on-line. Avoiding establishing competitive processes that give an advantage to suppliers with wider bandwidth. Standardizing and simplifying documents related to procurement and contracting processes to make them "lighter" and thus more accessible with limited band width andslow speedaccess. Establish "call-center" services. To define a security scheme that takes into account the fact that many suppliers and buyers are using public Internet services. To place special emphasis on training procurement entity personnel and suppliers in the general use o f Internet and the use of applications related to government procurement. To propose a public policy for connectivity development, expansion in cellular telephone offerings as well as width and band. 4.9. SYSTEMSINOPERATION 4.9.1. Desirablecharacteristicsaccordingto international experience When this report refers to systems, it means a set o f resources (technological and institutional) whose integration and operation guarantees the complete functioning o f an e-GP service (tendering, contract management for online purchases). Some governments have begun initiatives to establish specific procurement systems with electronic support. This may or may not be linked to a global strategy to achieve e-GP. The sub-components listed below can be used as a guide to consider whether or not these systems can be incorporated within an integral e-GP strategy. From and Administrative perspective,the Government: o Has developed a Strategic Plan ine-GP to link e-GP to with other "electronic initiatives" andfacilitate the developmentand application o felectronic procurement system(s). o The government is leading the decisionmakingprocess onthe e-GP system. CostaRica CPAR 130 o An electronic procurementmarketandprocess standards requiredhave been identifiedand adopted. o There is a leader government agency to oversee the development and application o f the system (s). o The Government has control over the future development and use o fthe system (although services and support may be provided by the private sector). From a Structural Perspective, the initial systems (in general systems for tendering) have been developed and implemented with the following functionalities: 0 Systems are based on Internet (Web-Web). 0 The information an all procurement opportunities is publishedon only one internet site. 0 The suppliers do not need to own hardware or software to utilize the system, beyond the need for navigator and an Internet connection. 0 The buyers and suppliers can register to do business on-line. 0 The system has a search engine to help the user to find information. 0 The legislation, policies and guides on procurement and the information regardingthe use o f the system can be consulted on-line. 0 There i s open access to all tendering documents. 0 System access for registered buyers and suppliers i s either free or low cost. 0 Tendering documents can be electronically downloaded. 0 Tenderer proposals can be electronically downloaded. 0 The system ensures the security and privacy o f information. 0 The public can access information on the tender evaluation and award process. 0 Information on awards i s accessible to the public at no charge. Basic interoperability and procurement standards are applied to all systems. It is critical to guarantee that the tendering documents, policy and legislation published on the electronic system are legally valid. This means that the information is equivalent to the original and i s not merely a representative copy. The key questionthat arises from this evaluation is: "to what point can electronic procurement systems be developed to be compatible with an e-GP longterm strategy?' 4.9.2. Findings COMPRARED is a very important step and provides valuable perspectives for future e- GP development. COMPRARED has the following characteristics: General Characteristics: o Based on Internet. COMPMRED has been conceived as "Web-WebYy,insuch a way that government procurement agencies and suppliers can use the software available CostaRica CPAR 131 on Internet and ordinary communication systems without having to acquire or install any additional support. o Free Access and no restrictions. The information available in COMPRARED is free and accessible to all ( with the exceptionof confidential private proposals). o Tendency towards a single portal. The COMPRARED portal is designed to contain all procurement information generated by the central government. Notwithstanding, significant duplicity exists given that information on procurement can also be found inthe portals of various public entities. On occasion, the information published on COMPRARED and the institutional portals is out o f sync. It i s no longer necessary to publish notifications innewspapers. BasicInformation: o Entities covered. COMPRARED covers executive entities at the central level. Autonomous entities are not included in the system and currently publish procurement information on their own portals and according to their own rules. Entities from the legislative andjudicial branches are also not included and no control i s exercised over procurement at the municipal level. Seventy-five percent (75%) o f total procurement with public funds i s outside o f COMPRARED's scope. o Procurement planned. Beyond what can be found in procurement plans, which tend to give approximate dates only, no information currently exists on current and future tendering processes. o Currentprocurement. COMPRARED provides information onthe majority of calls to participate intendering processes. Citizen Action has been very effective inachieving this coverage. o Results and awards. COMPRARED contains free information on the awards granted, including an award description, amount, quantity, and time frame. o Tender delivery. COMPRARED is still not equipped to handlethis point. Inter-connectivity. COMPRARED still suffers from low connectivity, but plans are underway to implement its on-line articulation with the Integrated System for financial management. COMPRARED's interoperability with other data bases (such as the registry o f persons, mercantile inscription, tax collection, and legal sanctions) is still either low or inexistent. Financing.The system currently has no planfor financing and financial sustainability in the long-term. CostaRica CPAR 132 Multilateral Development Banks. COMPRARED's new version seems to be compatible with the Multilateral Development Banks' requirements to use e-GP incredit, loan, anddonation operations. 4.9.3. Risks The initial phase o f COMPRARED's development (informative phase) implies little risk. Nevertheless, it is important to keep the following inmind: The duplicity o f information contained in COMPRARED and the Web pages o f various entities is not only useless and redundant. In fact, it carries with it the high probability that inconsistencies will be reproduced in both portals (due to differences in time frames, omissions, or errors). These inconsistencies undermine efforts to develop trust in the electronic system and obligate suppliers to make unnecessary verifications that could easily be avoided. The fact that COMPRARED i s not present in large national entities, other bodies o f public power, and the municipalities diminishes transparency and impact. Delays in consolidating these entities within the COMPRARED system stimulate duplicity in efforts and created policy barriers for participation. The analysis o f the infrastructure and Internet services show deficiencies in connectivity. As such, much of the population will be unable to access information if said access i s based only on Internet. Financial sustainability in the long term should be examined in order to avoid risks associated with dwindling funds and to guarantees further progress. 4.9.4. ConclusionsandRecommendations Development o f the e-GP system has gotten off to a good start given that it already offers incipient but important services. COMPRARED i s at a critical juncture. Its progress depends on significant institutional change throughout the procurement system. To fine-tune COMPRARED, it i s important to keep the following inmind: 0 All duplicity o f information must be eliminated to convert COMPRARED into the single official source o f information on procurement and contracting throughout the private sector. If this information cannot be eliminated from the entities' Web pages in the short-term, it should be obligatory to publish all information on the COMPRARED portal first and then transfer an electronic copy to the entity Web pages. The only valid official information on procurement should be found on COMPRARED. CostaRica CPAR 133 o Accelerate the incorporation of autonomous entities and municipalities in COMPRARED. Although itwill be difficult to accomplish this through the regulatory venue, it i s perfectly feasible to operate via the agreements and commitments that entities have to ensure transparency and the need to respondto pressure from citizens. o To create, in as little time possible, a statistical module (time frames, costs, prices, types of goods, types of suppliers, etc.) with information on state procurement and contracting. o To facilitate the reception of businessopportunities andpersonalized informationvia written andvoice messages sent by faxes andregistered telephones. o To publish all tendering base-documents on COMPRARED, ensure their simplicity andstandardization, and legally guaranteethat they are originals. o To elaboratethe necessary studies on COMPRARED's financial sustainability. CostaRica CPAR 134 Annex 1. SELF-EVALUATION METHODOLOGY The self-evaluation process has the following characteristics: The evaluation is conducted by employees and managers from national pubic, private and community bodies most involved in the development o f government procurement through both manual and electronic means. The evaluation is directed towards measuring the level o f preparation to make the transition to e-GP. For this reason, it focuses on identifying what does and does not exist in the current procurement environment to best determine the path to take when transitioning from manual mechanisms to e-GP. The evaluation guide (available at www.mdb-eanorg ) focuses on the 9 key components with which to plan the transition to e-GP. These components were based on the e-GP's strategic bases, shown inTable No.2. The preparation level has been based on the best practices derived from international experience with these components. The premise is that if the current procurement environment shows an elevated level o f preparationwith regard to these components, the country i s well positioned to adopt e-GP. On the contrary, if the level i s low, the key components will need to be constructed prior to e-GP's adoption. As such, the implementation strategy should adapt to these conditions and place emphasis on the weakest areas. To conduct the evaluation, the components were divided into individual sub-components. The participants inthe evaluationverified the information available to determine the level o f preparation for each sub-component. Based on this information, it was possible to establish the general level o fpreparation for each component. Finally, the participants in the joint evaluation freely expressed their opinions on the points that they considered most relevant to achieving an adequate transition to e-GP in the country. They were also invited to voice opinions regarding the principal challenges that must be faced. The four levels o f preparation relative to each one o f the components were defined on a scale from 1to 4 according to the characteristics shown inTable 3. The evaluation guide was distributed to the participating bodies more than two weeks prior to the evaluation so that participants could become familiar with the content and search for any necessary information from adequate sources. The self-evaluation exercise was complemented by focalized interviews and an analysis o f relevantreports. CostaRica CPAR 135 TABLENo. 2 STRATEGICBASESAND THE FUNDAMENTAL COMPONENTS OF E-GP STRATEGIC BASES COMPONENTSANALYZED HERE 1. Governmentleadership:commonvision, entity leader, assignment o f resources, Institutionalcapacity:the support for implementation. government's capacity to guide, lead 2. HumanResource and promote the necessary changes. Development:education, development o f abilities, development o f expertise, and Drofessionalization. 3. Strategicand Operationalplanning: strategic planningandre-engineering o f Governability:adoption o frules, administrative and process protocols. management bases and monitoring 4. Policies:definition o fthe objectives and and evaluationto support e-Gp guidelines to be applied consistently. adequately. 5. Legislationand Regulation:rules to maintain, internally and externally monitor efficiency, performance and the preservationo f e-GP's total focus. 6. Infrastructureand InternetServices: capable o f ensuringreasonable access to Functionalitiesof Businessand andthe quality of electronic services and Standards: sustainable their sustainable development and infrastructure, support services and maintenance. :ommon standards to ensure that 7. Standards: development o f standards for ?rocurement services are accessible, management, technical operations and integrated, and consistent. procedures to guarantee the consistency o f the e-GP focus and the interoperability o f all participating systems. Third partyparticipation: ensure 8. Integrationof the privatesector: that the private sector can participate suppliers are apt andready to participate and be involved ine-GP. ine-GP. Applicationof technology: technology that is appropriate, 9. E-Gp systems inoperation:planning, integrated, sustainable and selection, development, implementation modifiable andwhich i s developed and support o felectronic procurement gradually to provide services for systems to set up services for tenderings, tenderings, contract management, contracts and on-line operations.. and on-line procurement. CostaRica CPAR 136 TABLA 3 LEVELSOF PREPARATIONOF THE SUB-COMPONENTS Preparation (scale from 1- Description 5) 1 No evidencethat the sub-componenti s well developedandno evidence that support exists. 2 Little evidencethat the sub-componentis well developedandlimitedor no evidencethat it has support. 3 Some evidencethat the sub-componentis adequatelydevelopedand supported. 4 Sufficient evidencethat the sub-componenti s adequatelydevelopedand supported. CostaRica CPAR 137 ANNEX V PLANOF ACTION RECOMMENDED RecommendedActions Simplifi processesfor execution and control. The CGR should evaluate its tendency to issue technical opinions on fi contracting processes to instead concentrate on strengthening internal auditing o f contracting entities, limiting interventions to ex-ante operations. Strengthening the normativefunction Offer a strategic vision and consistent management of contractingpolicies and instruments.. Establish a regulatory body with the resources, mandate andtechnical capacity to develop and implementa strategic vision o f the public contracting system (expand DGABCA's mandate). 0 Strengthen DGABCA (financially and politically) to facilitate the tasks o f institutional procurement units in activities to establish norms, review and monitor planningand executionof contracting. Set up an inter-institutional committee that includes DGABCA, CGR, and the autonomous institutions to promote a system that integrates boththe central government o f autonomous entities. Strengthening of contracting operations Strengthen the contracting entities toplan, execute,follow up on and evaluate their contracting activities. Adopt a consistent system o fthresholds for the use o fthe different methods o f contracting established inthe LCA. These thresholds should be determined after an analysis has been made o fthe risksimplicit ineach method, the contract amounts, each institution's capacity, andmarket supply. Identify and disseminate bestpractices for planning, execution, performance CostaRica CPAR 138 evaluation, supplier registries, and the classification o f goods. 0 The DGABCA could facilitate the development o f standardized procurement instruments such as tender documents for procurement o f goods, works and non-consulting services as well as common performance indicators. Develop and expand COMPRARED's Maximize the utilization of information capacities. technologies and their applications in public contracting. COMPRARED should become a fundamental tool for improving transparency and efficiency inpublic contracting. COMPRARED should expandto serve both central government and autonomous entities. 0 Identify and evaluate information systems dispersed indifferent public entities to integrate them with COMPRARED. Prioritize the efficiency of contracting with Conduct institutional andperformance emphasis on autonomous entities. evaluations of contracting in the most developed autonomous institutions. Evaluations could be conducted inthe Social Security Office o f Costa Rica, the Costa Rican Institute o f Electricity, andthe PetroleumRefinery o f Costa I Rica. 0 Identify best practices and systems that are generated incontracting management (planning, operations and control) inthese institutions. 0 Utilize these evaluations to improve efficiency incontracting at each entity and generate models that can be I replicated inthe rest o fthe public sector. CostaRica CPAR 139 ANNEX V I PROGRESSINTHE IMPLEMENTATIN OF ACTIONS AND RECOMMENDATIONSFOLLOWING THE CR CPARREPORT OF JUNE,2005 1. The objective of this section i s to reflect on the actions and progress achieved in the implementation of the Plan of Action referred to in the Executive Summary and Chapter 111, Section IV o f this report. The results of this assessment were presented by the Government of Costa Rica at the Workshop for the Final Review and Discussion of the Pro r e s Report on the Public Contracting System (CPAR) that took place on the gth and 10' of November of 2006 in San Jose, Costa Rica. The following is a summary of a the topics andprogressreached. 2. Concerning the recommendations of the report to strengthen the normative and supervisory functions of Policy and create a Supervisory Body for the Public Contracting System in paragraphs 17 and 85, the Government has put together a reform project on the Law of Administrative Financing. This reform proposes designating the Head Office of Goods and Administrative Contracting as the Supervisory Body of the Public Contracting System. At the time of the workshop, the bill was being reviewed by authorities at the Ministry of Finance. Once this bill is approved, DGABCA's organization should be strengthened to ensure its leadership role in regulation and supervision. 3. Regarding the recommendations in paragraphs 17 and 89 to establish an Inter- institutional Committee to review and improve public contracting management and the promotion of best practices in the areas of planning, implementation and performance monitoring of public contracting, the Commission for Transparency and Ethics in Government assigned to DGBCA, from February of 2006, the coordinating function to the Inter-institutional Technical Committee on Public Contracting. This commission is currently made up of representatives from the most relevant Institutional Procurement Units in the country, including the Social Security Office of Costa Rica (CCSS); the Costa Rican Institute of electricity (ICE); the Municipality of San Jose; the Municipality of Belen; the Supreme Tribunal of Elections; the National University; and the Administrative Contracting Division of CGR. Thus far, the commission has concentrated its efforts on reviewing and writing up the newRegulation on Administrative Contracting that went into effect in January of 2005; the strengthening and organization of the Institutional Procurement Units; the harmonization and standardization of public contracting processes; the planning and programming of procurement based on budget planning; and an employee training program. 4. With regard to the recommendation in the report in paragraph 18 on the implementation of a second phase of COMPRARED. In September of 2006, began the implementation of the second phase with the incorporation of new information elements that are relevant to the procurement cycle, including: electronic tendering; requests for CostaRica CPAR 140 review recourses; corrections; clarifications and notifications; information on the progress o f different processes; award and publication o f contracts; the use o f Inverse Auction to procure common and continuous use goods. At this point, all the institutions of Central Administration are included and it is hoped that other entities o f the public sector will soon adopt COMPRARED as its information system. In addition, the Operating Regulation o f COMPRARED was drawn up to regulate system use and establish that the system must be usedby all Central Administration entities. 5. Inorder to consolidate the second phase, the Government should concentrate its efforts on encouraging all entities to adopt COMPRARED as a single system for procurement. The objective should be to incorporate the largest amount o f information possible on the characteristics and capacity o f both the local and international market to goods and service procurement in the public sector. The end goal is to ensure the integration o f all statistical information into only one system and to utilize this information as basic input to achieve other objectives such as improving the cost- effectiveness o f procurement programs, procurement planning, the consolidation o f volume items with a highpotential for generating savings through the use o f modalities such as the Framework Agreement, and using the system to strengthen the supervision, control and auditing functions inpublic contracting. 6. Regarding the recommendations on strategic planning for government procurement indicated in paragraph 95 o f the report, the Government passed the Regulation for Administrative Contracting in January o f 2005. This norm regulates the use o f Framework Agreements. Efforts are in progress to design procedures to use this modality and adapt COMPARED so Framework Agreements can be used once the Regulation comes into effect inJanuary o f 2007. 7. With regard to the recommendation inparagraph 96 o f the report on the need to utilize performance indicators, the Government developed a follow up module for performance indicators withinthe effort to implement the new version o f COMPRARED in September o f 2006. Some indicators have already been defined to monitor the management processes o f user institutions. 8. Regarding the recommendation to conduct an in-depth analysis o f digital certification strategy that takes into account potential risks and unnecessary costs, the Government has indicated that the administration of this type o f security risk has been contemplated in the Law o f Certificates, Digital Signatures, and Electronic Documents No.8454 passed in October o f 2006. The Regulations o f this law will be effective from Marcho f 2006. 9. With regard to the considerations made inAnnex I1o fthe evaluationreport onthe development and strengthening o f PYMES: A coordinated effort between DGABCA and the Ministry o f Economy resulted in the development o f a joint plan to strengthenthe PYME's participation in State Procurement in Costa Rica. As a result, in September o f 2005, the Special Regulation for the Promotion o f PYMEs was passed to facilitate PYME's participation in the supply o f the goods and services required by the public CostaRica CPAR 141 sector. This Regulation, which will be effective as o f September o f 2005, also stipulates that all entities must publish their procurement plans in COMPRSRED. Inthis way, the PYMEs will have access to information on procurement opportunities in the public sector. The Regulation will allow public entities to access the National Registry o f PYME suppliers- developed in COMPRARED- to find out more about the goods and services o f PYMEs and invite them to participate inprocurement processes. MAPSECTION 86°W Lago de 85°W 84°W 83°W 82°W To Rivas Nicaragua NICARAGUA La Cruz 11°N Los Chiles 11°N Cordillera Upala A L A J U E L A Golfo de San Rafael Papagayo Liberia Guancaste COSTA RICA Tempisque SanCarlos ó Lago de Puerto Viejo Cañas Cañas Arenal G U A N A C A S T E Santa Cruz Cordillera Quesada HEREDIA Chi pirr Flamingo Tilaran Guácimo Guácimo Reventazón Caribbean Sea Nicoya Volcán Turrialba olcán San Ramón Ramón Alajuela Siquirres Heredia C o r d i l l e r a (3,328 m) 10°N Cammona Puntarenas Volcán Irazú olcán Irazú Central Puerto Limon 10°N Playa Orotina Garza (3,432 m) Naranjo Turrialba P U N TA R E N A S GranSantiago de SAN JOSÉ JOSÉ L I M Ó N Cartago San Ignacio C A R TA G O Golfo de San Marcos del Atlántico Jacó Jacó Bribri Nicoya S A N Sixaola To Parrita J O S É ChirripóCerro Chirripo (3,810 m) Changuinola This map was produced by the Map Design Unit of The World Bank. Puerto (3,296 m) The boundaries, colors, denominations and any other information Quepos San Isidro shown on this map do not imply, on the part of The World Bank Cordillera Cerro Dunka Sixaola Cerro Kámuk Kámuk Group, any judgment on the legal status of any territory, or any (3,554 m) endorsement or acceptance of such boundaries. Dominical Talamanca Bahía de Coronado General Palmar 9°N COSTA RICA Sur P U N TA R E N A S PACIFIC To San Vito Cerro Punta SELECTED CITIES AND TOWNS OCEAN PANAMA PROVINCE CAPITALS Golfo Golfito Neily NATIONAL CAPITAL To RIVERS de Dulce David MAIN ROADS 0 20 40 60 Kilometers To Puerto Armüelles SEPTEMBER RAILROADS 0 20 40 Miles IBRD PROVINCE BOUNDARIES 33392 2004 INTERNATIONAL BOUNDARIES 84°W 83°W 82°W