Nepal has witnessed grave incidents wasting a huge amount of scarce resources because of decade-old manual tender system for public procurement procedures. There have been many cases of unlawful alliances among suppliers and contractors, often in collusion with corrupt political leaders and bureaucrats, in the process of awarding public contracts.
News related to bloody violence, and even shootings, while attempting to prevent rival contractors from participating in bidding used to make headlines from August to November when the government used to invite bidders for civil construction projects worth billions of rupees. Hence, the decade-old manual tendering system with many loopholes to manipulate contract awarding system was the main source of corruption and irregularities. Not only that, such a huge misappropriation of state recourses in awarding contracts for public works was also the biggest challenge in promoting good governance and transparency in Nepal. Yet, things have optimistically changed lately, with the country, despite prolonged political uncertainty and stiff resistance from interest groups, implementing some massive reforms in the process of calling, evaluating and awarding tenders to rightful supplier or contractors.
Initiation of reforms
Public procurement process via manual bidding started in the 1960s when Nepal started its development endeavors. This traditional practice with many shortcomings and some serious loopholes – that allowed the bidders to form cartels and manipulate the whole contract-awarding system – became a mainstay for the next five decades. A bold step was taken in this regard in 2006 when the Public Procurement Act was enacted. This paved way for the establishment of the Public Procurement Management Office (PPMO) and the adoption of strict procedures for public procurements. But changes did not take place as rapidly as thought following a political upheaval in 2006. The revolution of that time did end the 250-year-old monarchy and established Nepal as the youngest republic, but at the same time intensified inter and intra-party feuds, weakening law enforcing agencies and resulting in a rapid deterioration of law and order situation in the country. This provided a breeding ground for growth of criminal gangs, which soon started maneuvering the public bidding process for public procurements that, on average, absorb half of the country’s annual budget.
Very soon, hiring of hooligans to secure contracts, incidents of intimidation and abduction of rival contractors started becoming a normal affair. Gradually, criminal gangs even started threatening local government officials, involved in evaluation of bid documents, sometimes forcing them to relocate their bases to the places where security arrangements were comparatively better. Then in 2008, Karan Singh Yadav of Biratnagar died in exchange of fire between criminal gangs. This not only dominated newspaper headlines but also exposed the scale of violence and criminalization associated with public bidding in the country. Soon after that, a shooting incident occurred in a tender-related dispute injuring several campus students in Kathmandu. Both these incidents sparked outrage across the country and created a strong public opinion for initiation of massive reforms in public procurement procedure. Then in 2008, the government introduced an experimental e-tendering system, initially for the road projects. The reform initiative, originally targeted at fending off criminal gangs, was another bold step in reforming the decade-old public procurement process in Nepal. Later, e-tendering became mandatory for public procurements worth more than Rs 20 million.
Since the introduction of e-bidding system, there has been a remarkable decline in cases of violent incidents and a significant increase in the number of bidders. According to the DoR, of the total 2,764 e-tenders it has received, over 1,900 were received in 2011 alone. As the government has already adopted a policy of making e-tendering mandatory for public procurements worth more than Rs 20 million, the number of bidders using e-tenders for public contracts undoubtedly seems to rise in coming years. Moreover, the introduction of e-bidding has also helped in reducing the cost of development projects by up to 20 percent in some cases. The most striking figure came from the Ministry of Physical Planning and Works—the largest government agency handling the volume of development budget— saving more than Rs 3 billion out of the initially allocated budget for the purpose of various public contracts since the introduction of e-bidding four years back.
Moreover, it has solved over 80 percent of the problems that used to pop up during manual submission of tenders. This was because aspirant bidders didn’t have to hire criminal gangs or bribe officials to ensure that their bids reached the government office, which according to some estimates used as high as 10 percent of the quoted amount depending upon the nature of tender. In this context, a study conducted by Department of Roads on five major road projects revealed that the bid amount submitted by contractors through e-tendering was over 20 percent less than the initial estimate, while the procurement period needed to complete tender awarding processes became shorter by 20 days on average compared to up to 45 days in the past.
Even after four years of implementation of e-tendering system, Nepal still has not been able to adopt a fully automated tendering system that many developing countries have implemented. Undoubtedly, chronic power shortage and the lack of reliable Internet services have remained two major obstacles in this regard. However, the stern political resistance to reformation of the conventional procurement system has been the biggest problem. It was an open secret that manipulation of tender documents by yielding in to political influence and muscle power used to be one of the biggest sources of income for the politicians and bureaucrats, who are ironically often heard of reiterating their commitments to public procurement reforms. As actions speak louder than words, their dillydallying in putting necessary mechanism in place to ensure full-fledged operation of e-bidding system clearly reflects that they are merely paying lip-service to the much-crucial reforms that can keep a huge amount of development budget from sneaking into private banks accounts.
As a result, contractors are still required to submit hard copies of their bidding documents along with other related papers, as the existing system is only being used for submission of bids. Similarly, urgent calls for ensuring necessary tools and legal provisions that are needed to recognize digital certification and signatures of bidders have met with cold responses. Though the government has already endorsed the Electronic Transaction Act, it is yet to introduce some additional provisions to meet legal requirements on authentication of digital documents and signatures, something that has been another constraint in introducing full-fledged electronic bidding system. Additionally, the lack of online payment system to purchase tender documents has limited the scope of e-bidding in Nepal.