Enhancing Competition in Public Procurement

For many years now, the discussions concerning Public Procurement in Nepal has been besieged by the complaints regarding project implementation delays and cost overruns. The news portals are flooded with the many problems that persist in the sector, which reveal that Nepal has constantly failed to achieve the best value for money. Consequently, the inefficiency in public procurement has shown detrimental effect in the economy. It has not only compromised the range and depth of infrastructures and services that the nation could provide, but also has given rise to additional problems in the form of low capital expenditure, insufficient job creation and sluggish economic growth.

All of this begs to question as to how can Nepal achieve the best value for money through Public Procurement?

International studies show that creating conditions that enable the authority to select best deals through competitive contracting procedure would ensure that the public funds are used rationally. However, the studies also render public procurement process as highly vulnerable to distortion via anti-competitive practices. This can be attributed to the sheer volume and high value of public procurement projects which creates attractive opportunities for corruption to both public and private parties. Public Procurement, being prone to anti-competitive and corrupt practices, which further magnifies the resultant harm, needs particular attention.

Promoting competitive practices and adopting measures to mitigate corruption, seems to be the most plausible solution to enhance efficiency in the public procurement process of Nepal. Currently, with series of amendments in the legislations regarding public procurement, the government has been able to ensure competitive conduct to some extent. However, provisions regarding domestic preference of contractors over foreign bidders – which demonstrates anti-competitive practice which might hinder transparency and promote corruption – still persists in the Public Procurement Act, 2063 of Nepal.

A general notion of enacting laws that provides for domestic preference over foreign bidders is that, it could end up jeopardizing the nation’s own domestic industry. Owing to the simple reason that domestic bidders would have little or no access to procurement markets in its own nation while bidders from all other countries would have complete access to the procurement marketplace. This could eventually endanger domestic contractors and result in job losses.

In reality, this is an issue which needs to be reviewed critically in terms of cost-benefit analysis. Developing countries often benefit from the price, skill and technology available through open biddings which help in boosting up the local economy.

All countries share the primary aim to develop local economies and make them competitive. However, it has a been a long realization that fair competition and equal opportunities to companies all over the world rather than restricting international competition could help achieve the desired objective more effectively. The international trend of developed countries shows that in influence of heavy competition, the local companies mature and begin to win procurement contracts. Thus, it would be in the best interest of the nation if procurement activities are fair and transparent which focuses on competition.

Nevertheless, if the threat of foreign companies taking over all the procurement projects persists, there are other ways through which the government can ensure the protection of local employment and resources. For example, in Malawi the Public Procurement Act states that in case the procurement is awarded to international bidders, the bidders must ensure that the labor, raw materials and components from within the country should account for more than 30%. Similar policy adopted by the United States showed that it limits foreign participants and enhances involvement of small businesses.

Moreover, in order to promote the small contractors with lesser capabilities, the government can split or divide the contracts in lots. For instance, France, splits up low requirement contracts in favor of domestic bidders. The result has demonstrated that it benefits the domestic contractors and suppliers.

In context of Nepal, corruption is a primary mechanism which has covered all aspect of procurement activities. In such a scenario, it is natural for domestic firms to be resistant to calls for more transparency. Equal opportunities to both domestic and international contractors could thus, not only augment transparency but also condense corruption.

With regards to the aforementioned arguments, if public procurement is to work effectively, the business community of suppliers, contractors and consultants must be trained in the concepts of public procurement, made technically and professionally competent, encouraged to adopt a strict code of ethics and to complement the efforts of the public purchaser to make the whole process economic, efficient and free of corruption. One method of achieving the goal, is by making the sector highly competitive, where competent bidders from all over the world can participate equally.

– This article was originally published by Ayushma Maharjan in The Himalayan Times on January 19, 2020.