Best Practices

General Operational Policies*

Procurement of Goods and Services

The procurement of goods and services is based on the following principles:

• The final responsibility for the procurement of goods, construction works, and other services, lies with the Borrower.

• The Bank requires that all borrowers (including grant beneficiaries) as well as suppliers, contractors, and consultants participating in Bank-financed projects adhere to the highest ethical standards, both during the bidding process and throughout execution of a contract.

• Procurement stemming from Bank operations must comply with the rule established in the Agreement Establishing the Bank regarding The Efficient and Economical Use of Bank resources.

OBJECTIVES

• To establish procurement procedures that effectively sustain the quality, cost, and timely execution of operations funded by Bank loans.

• To apply sound policies and practices with equitable and transparent procedures for the creation of reliable and stable markets able to attract efficient suppliers and contractors, and safeguard the principles of responsible management and the effective use of public funds.

• To provide bidders in the Bank's member countries with the opportunity of competing on an equal footing to supply goods, works, and services.

BASIC GUIDELINES

Each loan contract regulates the Legal Relationship between the Bank and the borrower and the main aspects of procurement procedures. The legal relationship between borrowers and suppliers of goods and services is governed by the contracts between the supplier and the borrower, and no supplier or entity that is not a party to the contract may derive rights or demand payment in connection with the contract.

Procurement Planning. Borrowers are to prepare a general procurement plan in conjunction with the Bank when an operation is being studied. Any necessary adjustments to the plan during project execution will require the Bank's prior agreement. In special and duly-justified circumstances, the Bank may authorize a change in criteria provided this does not affect competition or the original economies of scale.

Egilibity of Contractors. Only companies and professionals domiciled in or nationals of one of the Bank's member countries are eligible to supply goods and services financed with Bank resources.

Origin of Goods. Only goods that originate in one of the Bank's member countries may be procured.

The Bank encourages suppliers and contractors from a borrowing member country to participate in the procurement process.

Procurement of goods and services and the execution of works financed with Other Sources of Funds not deriving from financing by the Bank or the borrower must conform to the technical requirements of the project and entail reasonable costs and financial conditions in the Bank's view.

Recognition of Expenditures. Outlays for goods procured and works contracted by the borrower or project executing agency prior to the approval of a loan by way of exception, be recognized as expenses and charged to the Bank's financing or the local counterpart, provided that such procurement has substantially conformed to Bank policies. However, borrowers and executing agencies who enter into contracts before a loan is approved and the loan contract signed do so at their own risk. In the event that an operation is not approved, the Bank will not finance procurement costs (see OP-504).

PROCUREMENT SYSTEM

The system to be used to obtain the goods and services needed for projects financed by the Bank will depend on the sums involved and other criteria defined below. Procurement thresholds will be approved by the Project Team Leader, subject to clearance from the Procurement Unit, on a case-by-case basis, ensuring at all times that the process will be transparent, equitable, expeditious, and efficient.

The Bank will use the following systems:

Competitive Bidding, which is a formal competitive process in which bids on goods, works, and services are publicly invited, received, and evaluated, and the contract is awarded to the bidder whose offer is the most advantageous.

1. International Competitive Bidding permits foreign companies to take part. This system is Compulsory when the cost of works is over US$5 million and the cost of goods is over US$350,000 (see OP­502), or to the limits established by the Chief of Project Team.

2. Local Competitive Bidding (bidding restricted to local firms) permits only national companies to take part. This system is used when the contract is to be financed exclusively with the local currency from a Bank loan, exclusively with funds from the borrower, or a combination of the two.

Limited Bidding involves express invitations to selected companies, with no public announcement. This system generally follows the same principles and policies as those governing the competitive bidding system.

Price Comparison (Shopping), whereby quotations are obtained from three or more local or foreign suppliers. This system does not require the use of formal bid documents.

Direct Contracting, whereby a firm is contracted without a competition.

Force Account, whereby the borrower itself executes a given works project, using its own personnel and machinery. In such cases, the Bank approves the budget for the work in advance.

CRITERIA

The main criterion for establishing the spending threshold that determines which system is to be used is the promotion of International Competition. The project team leader should also consider the nature and size of the project; the guidelines for setting country and sector thresholds devised by the Procurement Unit; bid packages that can attract international bidders and promote economy and efficiency; the opinions of potential foreign suppliers and contractors specializing in the goods, services, or works to be procured; the thresholds set by other international agencies; the size, complexity and cost of the items to be procured, the country's economy; and the production capacity and availability of local contractors to supply the goods or carry out the works required.

For projects in which both the project team and the Procurement Unit determine that the use of the established Thresholds could have negative effects on the promotion of international competition or that it is unlikely that the threshold will ensure the most economic and efficient results, higher limits may be proposed, which must be duly justified in the loan documents.

Procurement of goods, works, and services costing Less Than the Ceiling will be governed by local legislation, provided it is not counter to Bank policies with regard to the efficient and economical use of resources and participation by several bidders. The basic principles to be considered for procurement costing less than the threshold are the use of adequate publicity, equal treatment of bidders, minimum terms, and due formality of the process.

PRIVATE SECTOR PROCUREMENTS

The Bank permits borrowers (project executing agencies) in the private sector to use the system of Limited Bidding for their procurement. Private enterprises are defined as those in which the government holds less than 50 percent of the equity.

The Bank's procurement policies also apply to private-sector parties, particularly with regard to the appropriate use of the proceeds of its loans, the efficient and economical use of resources, and the eligibility criteria governing goods, works, and services.

The Bank should ensure that its private-sector borrowers follow competitive procedures that enable goods and services to be procured at market prices at costs in line with project requirements.

Contracts awarded by private-sector borrowers must be negotiated impartially and objectively.

PROCUREMENT FOR PROJECTS IN EMERGENCY SITUATIONS

The procedures for projects and/or programs to address emergency situations consider the simplification of certain requirements that normally apply to international competitive bidding and selection (when contract budgets exceed certain thresholds). For procurement amounts beneath the thresholds indicated, the Bank will generally accept the procedures established in national legislation for emergency situations, in the same way that it accepts national procedures in normal situations. Nonetheless, if national legislation permits unrestricted direct contracting as the method for award of contracts in emergency situations, the Bank may require the Borrower/Beneficiary to apply the mechanisms set forth in this document, to procurement below the threshold amounts established for international competitive bidding and selection.

When confronting an emergency situation, the Borrower/Beneficiary and/or the Executing Agency will agree with the Bank on the procurement procedures to be applied, as well as the amounts associated with the different procurement methods to be utilized. The resulting agreement will have to have the no-objection of the Procurement Policy and Coordination Office of the Bank. At the same time, the agreement will serve as the basis to apply the recognition of expenditures and retroactive financing policies for contracts signed prior to the approval of the operation.

The eligibility requirements established under Bank policies with respect to the nationality of constructors of works, suppliers goods and providers of consulting services, and the origin of goods and related services, will remain in effect for all Bank financed contracts.

OTHER PROCUREMENTS

Parallel Financing agreements in which packages or series of goods or works to be procured or contracted are distributed among the institutions financing the project. The distribution must be satisfactory to the institutions involved and the borrower, and suitable for the project objectives, costs, financing, and execution.

Joint Financing agreements, in which case-by-case decisions will be made regarding the procurement procedures to be applied by the borrower.

PROTESTS

The legal relationship in a procurement contract is between the borrower and contractor, who are responsible for settling disagreements. However, the Bank hears protests lodged by contractors in any stage of a bid process to ensure that procurement financed out of its funds are carried out in accordance with its policies and procedures.

The Bank deems a protest to have been lodged when the protestor submits a written claim, objection, allegation, rejection, or some other expression of disagreement to the competent authority in the country or directly to the Bank.

CORRUPT PRACTICES

The most common types of corrupt practices are bribery, extortion or coercion, fraud and collusion, but not exhaustive. For this reason, the Bank will also consider claims of a similar nature involving alleged acts of corruption, in accordance with the established procedure.

NORMS

The specific guidelines governing procurement appear in the corresponding policy and the Procurement of Goods and Services Manual.

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Prevailing Reference Documents:
GP-118-11, March 1992
GP-118-14, September 1992
GP-118-20, September 1994
GP-118-23, January 1998
GP-95-5, September 1980
GP-92-15, December 1998
GP-92-15 Annex A, December 1998

* The operational policies of the Inter-American Development Bank are intended to provide operational guidance to staff in assisting the Bank's borrowing member countries. Over the course of the Bank's more than 40 years of operations, the approach to developing operational policies has taken various forms, ranging from the preparation of detailed guidelines to broad statements of principle and intent. Many policies have not been updated since they were originally issued, and a few reflect emphases and approaches of earlier years which have been superseded by specific mandates of the Bank's Governors, the most recent being the Eighth Replenishment mandates of 1994. In accordance with the Bank's information disclosure policy, the Bank is making all of its operational policies available to the public through the Public Information Center. Users please note that the Bank's operational policies are under a process of continuous review. This review process includes preparation of best practice papers summarizing experience at the Bank and other similar institutions, and sector strategy papers.