Best Practices

General Operational Policies*

RECOGNITION OF EXPENDITURES, RETROACTIVE FINANCING, AND ADVANCE CONTRACTING

DEFINITIONS

Recognition of Expenditures refers to recognition, as part of the total cost of a project, of certain payments related to the project made by the borrower before the date on which the Bank approves the loan or technical cooperation project.

Retroactive Financing refers to agreement by the Bank to finance all or part of the costs incurred by the beneficiary with respect to a project before the date on which the Bank approves the project.

Advance Procurement refers to the commitments assumed by the borrower, before the date on which the Bank approves a loan or technical cooperation, in connection with the procurement of goods and/or services for the project. In contracts for global loans to development institutions, the term "credits entered into" includes contracts signed with sub-borrowers on or after a date agreed upon by the Bank and the borrower. In other loans or technical cooperation projects the term "expenditure" or "expenses incurred" refers to a payment or payments made on or after a date agreed upon by the Bank and the borrower or beneficiary.

APPLICABILITY

Eligible operations include public sector investment loans and technical cooperation operations financed by IDB resources. Excludes MIF operations and technical cooperation financed by Donor Trust Funds.

POLICY

The Bank may recognize as part of the local contribution, or of the portion to be financed with proceeds of the Bank's loan or technical cooperation, expenses incurred or commitments assumed by the beneficiary on or after a specified date prior to the date of approval of the project, provided that such expenses or commitments were incurred or assumed following procurement procedures that have complied with conditions substantially similar to those subsequently established in the loan contract or technical cooperation agreement.

The potential beneficiary undertakes any prior procurement processes at its own risk, taking into account that, if the respective operation is not ultimately approved, the Bank will not finance advance procurements. Advance procurement actions do not relieve the beneficiary from conforming to the Bank’s environmental standards or other sectoral policies.

BASIC GUIDELINES

Advance Procurement is appropriate to assure a higher quality at entry for projects and advance their maturity prior to approval. Advance procurement can involve preinvestment activities, preliminary or pre-operational works, seasonal work, purchase orders for equipment that must be ordered in advance so that it will be available in accordance with the project execution schedule, an opportunity for the borrower to obtain a significant economic advantage if it avails itself of particular circumstances, global loans to intermediary financial institutions which commit the total proceeds of earlier loans, and loans for emergencies or disasters.

In large projects, borrowers frequently begin the process of contracting some project components prior to the probable date of approval of a project by the Bank, taking steps that are important for project execution, but which are not "advance procurement" in the strict sense of the term. Such steps are usually related to the prequalification of firms, calls for bids, and the opening and examination of bids. These processes, which the beneficiary must begin early to ensure that a project will be ready to proceed when the loan or TC is approved, are also subject to the safeguards established below with regard to procedures for their acceptance and information requirements.

Retroactive Financing to be paid from the loan or TC will only extend to expenses incurred during the 18 months prior to the date on which the loan or TC is approved.

Recognition of Expenditures as chargeable to the local contribution will only include expenses incurred during the 18 months prior to the date on which the loan or TC is approved.

In any case, the Bank will not provide retroactive financing or recognize expenses incurred prior to the project’s official entry into the project pipeline, normally the date of approval of the appropriate profile (Project Outline or TC Profile).

Exceptions could be granted for advance procurement undertaken before these time periods based on specific circumstances if, in addition, the beneficiary complied with the requisite procurement rules.

All expenditures incurred by the borrower after the date on which the project is approved are eligible for recognition or retroactive financing, as the case may be, if they satisfy requirements substantially similar to those established in the loan contract or TC agreement.

The Bank will only approve, prior to the signature of the contract, documents relating to advance procurement once it has received studies demonstrating that the items proposed for advance procurement are compatible with the general project design. As a general practice, advance procurement actions should be reviewed with the project team or Country Office to ensure eligibility.

Prevailing Prevailing Reference Documents:
GP-95-5, August 1980,
GP-95-6, December 1980,
GN-2259-1, July 2003.