Govt toughens procurement rules

Differences remain with IMF over award of direct contracts to state enterprises

ISLAMABAD:

Pakistan and the International Monetary Fund (IMF) have differences over banning state-owned enterprises (SOEs) from getting contracts without competitive bidding, as the global lender allows these contracts only in exceptional circumstances requiring disclosure of the events leading to such negotiated deals.

Barring differences over two important clauses relating to the direct award of contracts to SOEs and limitation on negotiations, the government has proposed stringent public procurement rules to plug a major source of corruption.

It has also proposed new conditions for the eligibility of contractors and the responsibility of federal secretaries and heads of departments in awarding public work contracts. The federal secretaries and the heads of departments are proposed to be given explicit responsibility for awarding contracts while the contractors, owners, beneficial owners and directors facing court cases with a possibility of bankruptcy or conviction in the past will not be eligible to bid for any government procurement.

Under the IMF's Governance and Corruption Diagnostic Assessment action plan, Pakistan was required to approve and notify new Public Procurement Regulatory Authority (PPRA) Rules 2026 by June this year after repealing the 2004 rules. However, the government missed the deadline due to differences over award of direct contracts to SOEs.

Sources said that last week the Ministry of Finance informed the committee on economic governance systems that the minister in charge Cabinet Division, who happens to be the prime minister, had endorsed the new rules, "which are now awaiting the approval of the Cabinet Committee on Legislative Cases (CCLC)". Planning Minister Ahsan Iqbal heads the governance committee.

However, the sources said the government had not yet endorsed the language of the proposed Rule 32-F, which deals with direct contracts. When asked whether the finance ministry informed the committee about the status of 32-F rule, Ahsan Iqbal replied that the finance ministry said "rules are with CCLC and will be approved in the next meeting".

When approached, a spokesman for the finance ministry said, "Draft rules, or amendments in existing rules, are processed by ministries, divisions or a particular institution, in consultation with all relevant stakeholders. The sponsoring institutions, following the consultation, submit the draft rules, or amendments in existing rules, to CCLC, with the approval of the minister in charge."

The ministry's representative told the governance committee last week that the draft rules had been endorsed by the PM Office. Sources said that the IMF had suggested that a procuring agency should not engage in direct contracting with state-owned entities such as professional, autonomous or semi-autonomous organisations or bodies of the federal or provincial governments for the procurement of goods, works and services, including consultancy services, except for works and services, including consultancy services, which are time-sensitive, scattered, remotely located and in the public interest.

However, the draft rules suggest "a procuring agency may engage in direct contracting" with certain conditions. The conditions that the IMF has suggested for the award of direct contracts materially differ from the conditions that the government has proposed.

Sources said that the IMF had proposed that any such direct contracting should be carried out through the E-Pak Acquisition and Disposal System (E-PADS), and the organisation or the body should accomplish the work or services, including consultancy services, exclusively through its own resources without involving the private sector as a partner, in the form of a joint venture or as a sub-contractor.

Where specialised project components are required to be outsourced, the SOE may assign the respective work to sub-contractors, which in no case will exceed 40% of the total quantum of the work.

The government has accepted these conditions but proposed a clause that stated that the 40% limit could be relaxed. It proposed that "all financial thresholds enumerated in this rule may be modified by the Authority from time to time".

SOEs sometimes take the work without bidding and then sublet it to private firms, which the IMF seeks to stop in a bid to tackle poor governance and plug loopholes that can lead to corrupt practices.

The IMF said in case the entity engaged in sub-contracting beyond the permissible limit of 40%, it should fall within the ambit of material deviation. Material deviation will include collusive, coercive, corrupt, fraudulent and obstructive practices as defined in the public procurement rules.

Sources said the IMF had suggested that direct contracts to SOEs should only be given in exceptional circumstances and in that case the head of the procuring agency would submit through E-PADS a written determination of exceptional circumstances, together with an undertaking that the conditions prescribed in the relevant rule had been satisfactorily met, and such determination and undertaking would be publicly available through E-PADS.

The proposed rules mention only that the head of the procuring agency will submit an undertaking on E-PADS that the conditions prescribed in this rule are being satisfactorily met. It does not talk about public disclosure of this determination. CCLC can make these changes before new rules are tabled before the federal cabinet for approval.

PPRA MD Hasanat Qureshi said the 2004 rules had become outdated and the authority had proposed changes to those rules. The proposed rules seem limiting the scope of corrupt practices. According to a proposal, the procuring agency will have the authority to blacklist bidders for 10 years for corrupt and fraudulent practices and for up to five years for providing false information, which is a prevalent practice.

All public procurements above Rs700,000 have to be done only through a competitive bidding process. The federal secretary or the head of the procuring agency will have overall control and supervision over all public procurements by the procuring agency. These officials will ensure that public procurements are done in accordance with the law, rules and regulations. The officials will also set up a third-party validation committee for the validation of bids from Rs500 million to Rs2 billion and an external evaluation committee in case of over Rs2 billion bids.