Nepal Proposes Major Overhaul of Public Procurement Act to Boost Efficiency

Kathmandu. The government has initiated a comprehensive amendment process to the 'Public Procurement Act, 2063' to make the public procurement system timely, technology-friendly, and result-oriented. The draft of the 'Bill to Amend the Public Procurement Act, 2063, 2082', prepared by the Public Procurement Monitoring Office, proposes dozens of new provisions to eliminate procurement hurdles and enhance accountability.

Construction entrepreneurs and stakeholders had long demanded amendments, arguing that the existing Public Procurement Act was neither timely nor practical and hindered development projects. Concluding that the nearly 18-year-old act's provisions were obstructing development, the government's new draft proposes a 'structural change' in the procurement process.

The most revolutionary aspect of the proposed draft is the introduction of the 'reverse auction' method. In this method, bidders can competitively lower their prices while viewing each other's quotes through an online system. The contract will be awarded to the one who submits the lowest price within the specified time.

However, the tendency to win contracts by submitting bids significantly lower than the cost estimate and subsequently abandoning the work is a major problem in Nepal. According to the amendment in Section 25 of the draft, if anyone submits a bid that is 50 percent lower or 30 percent higher than the cost estimate, it will be considered 'abnormal'. In such cases, the bidder must provide technical and financial justification for their rate. If the basis is not satisfactory, the evaluation committee may cancel such a bid.

• Control on Mobilization Advance and Monitoring of Bank Accounts

The draft includes strict provisions to solve the problem of construction entrepreneurs taking advances without performing work. Now, a maximum of 20 percent of the procurement contract amount can be given as mobilization advance. To ensure this advance amount is spent on the relevant work, a separate bank account must be opened, and regular expenditure details must be submitted. If the advance is found to be misused or if work does not begin within 30 days of receiving the advance, the bank guarantee will be directly forfeited, and the contract will be terminated.

Previously, the act did not have provisions for action against the misuse of advances, although it required disclosure of the purpose of expenditure.

• What is being amended?

The proposed draft aims to make government procurement completely paperless. Now, when calling for bids through the electronic procurement system, notices will no longer need to be published in newspapers. The draft states, 'In cases where bids or pre-qualification proposals are invited through the electronic procurement system, such notices shall not be published through any medium other than the electronic system.'

Previously, Subsection 1 of Section 14 of the Public Procurement Act mentioned bid invitations. It required the notice for bids or pre-qualification proposals to be published in a national daily newspaper. In the case of international-level bids, it could also be published in international media.

Subsection 2 states that in cases where bids or pre-qualification proposals are not invited through the electronic procurement system, the public entity must post such notice on the website of the Public Procurement Monitoring Office, and if the public entity has its own website, it must also be posted there.

Previously, Subsection 2 of Section 14 of the Public Procurement Act stated that for central-level public entities, the notice had to be posted on the entity's or the Public Procurement Monitoring Office's website. For district-level public entities, such notice could be posted on the entity's or the Public Procurement Monitoring Office's website.

Similarly, the government has introduced the concept of a 'Government E-Marketplace'. Now, public entities can directly purchase daily consumable goods or services from designated online markets.

• Mandatory Priority for Domestic Products

The draft broadens the definition of domestic goods to support the 'Make in Nepal' campaign. It mandates priority for goods that use domestic raw materials or have a certain percentage of value addition within the country. Section 14 proposes that such priority conditions must be included in the bidding documents.

In the 2063 Act, the priority for domestic products was only general. The 2082 draft defines domestic goods as those with 30 percent value addition and mandates priority in procurement.

• Departmental Action for Employees and Rewards for Entrepreneurs

The 2063 Act did not have clear provisions for action against employees who awarded contracts without site clearance or withheld payments.

The 2082 draft brings employees who award contracts without preparations like land compensation, tree cutting, or design, or who withhold payments or act negligently, under the scope of departmental action. On the other hand, it attempts to boost morale by providing rewards and certificates of appreciation to entrepreneurs and employees who complete quality work on time.

The draft also establishes the accountability of employees involved in the procurement process. It proposes departmental action against employees who call for bids without site preparation, such as compensation, tree cutting, or environmental studies, or who fail to make timely payments after work completion or provide incorrect designs.

Conversely, the draft also includes positive provisions for rewarding and appreciating construction entrepreneurs and employees who complete quality work within the stipulated time.

• EPC and Turn-key Models for Large Projects

Special provisions for 'Engineering, Procurement, and Construction' (EPC) and turn-key methods have been made for complex and large infrastructure projects (e.g., tunnels, bridges, hydropower). In this, the responsibility from design to construction will be given to a single company, which will facilitate risk and cost management of the project.

Similarly, it is mentioned that government entities must now mandatorily follow national standards and 'specifications' when purchasing software.

Responsibilities have been divided by determining the levels of officials authorized to approve variations of 5 to 15 percent in variation orders. Since the prices of items like chemical fertilizers, petroleum, and iron fluctuate in the international market, special and rapid procedures have been proposed for their procurement. To strengthen Nepal's position in international arbitration cases, a path has been opened to directly appoint foreign legal experts.

Procedures to be followed by public entities when purchasing land for commercial purposes have been added.