PUBLIC PROCUREMENT REFORMS: ISSUES AND

CHALLENGES: THE CASE OF UGANDA

A. BACKGROUND TO THE REFORMS

Effective public procurement systems are systems that are defined as offering a
high level of transparency, accountability and value for money in the application
of a procurement budget. They are critical to poverty reduction and AID
effectiveness. Hence, all parties in the development process must have a vested
interest in promoting this critical pillar of good governance: and to do so, in the
context of an open macro economic framework that promotes open competition,
the free functioning of markets and the allocation of resources based on
comparative advantages.

The reforms in Uganda, commenced in 1997, as a process and a key milestone,

or the first key event was the National Public Procurement Forum held at the
behest of the Ministry of Finance, Planning and Economic Development
(MOFPED) in Entebbe. The co-chairmen of the Forum were the Heads of the
Central Tender Board (CTB) and the Government Central Purchasing Corporation
(GCPC) and representatives of ministries, parastatals and district tender boards
participated. No industry representatives or the private sector were involved.

UNCTAD/WTO International Trade Centre (ITC) backstopped the Entebbe

Workshop with technical advise and financial assistance from the Swiss
Government. The World Bank was also in attendance at the Forum, where it
indicated its intention to conduct a Country Procurement Assessment Review
(CPAR) in 1998.

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There were two sources of pressure on the Government to review the
performance of the public procurement system and to generate a restructuring
plan. One was the realisation by the Government itself, that the old system could
not deal satisfactorily with the emerging demands on the system in terms of
transaction numbers, expanding value of procurement budgets, scale and
technical complexity of procurement activities. These demands were being made
against a backdrop of a lack of bureaucratic accountability and transparency and
the absence of a culture of value for money procurement. Against this weak
background, donors began to exert pressure on the Government to put in place
the appropriate remedies.

In response, the Government created in May 1998 a twelve-man Task Force on

Public Procurement Reforms comprising the private sector represented by
Procurement and Logistics Management Association (PALMA) and the donor
community by the World Bank and headed by Mr. Kalanguka-Kayondho. The
Task Force was given comprehensive Terms of Reference and was meant to
report to the Ministry of Finance, Planning and Economic Development within six
months i.e., February 1999. in a nutshell, the Terms of Reference required the
Task Force to:

(i) take into account the Entebbe Forum findings on the constrains in
the existing system and what changes may be needed to rectify
these;

(ii) bring into consideration international best practices in formulating a

reform programme to be implemented by the Government;

(iii) pay attention to the findings of the CPAR and take these into
consideration in the programme design; and

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 (iv) submit to the Government a comprehensive procurement policy
reform plan for approval and implementation.

The Task Force submitted its Report to the Government in March 1999, which
identified widespread corruption and malpractice in the procurement system.

B. FINDINGS OF THE TASKFORCE

In particular, the Task Force found that:

Trade Practices. Private sector participation in public procurement, particularly

goods and services, is very minimal. Local traders, suppliers, consultants,
contractors, architects and engineers have not built enough capacity to
participate in tenders advertised internationally and locally particularly when the
values are large. Local suppliers and contractors often do not have the capacity
to raise credit, bid bonds and securities from local banks and insurance
companies, in part due to the high rates of interest charged.

Suppliers who would like to participate in public procurement find the

procurement procedures irrational and cumbersome. They are sometimes
excluded when the procurement is too big and they are apprehensive of
unfamiliar procedures. They are not well informed of how the procurement
process functions, which renders the process open to abuse. The private sector
does not believe the public procurement process can move without a “push”. The
private sector, however, would embrace clear, easy-to-follow guidelines if this
minimises costs and facilitates business.

There are indications that over and under-invoicing in imports and local
procurement are common practices. This is attributed to mainly inside dealings.

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 However, long time lags and delays on the part of government to pay suppliers
are some of the causes for over-invoicing. Under invoicing is due to
uncertainties relating to a supplier’s chances of winning a tender bid.

There is evidence of malpractice that affects public sector procurement; e.g.

vehicle repair documents are often not used. Sometimes invoices, receipts and
other documents are faked. In other instances of government procurement,
documents are “chased” by suppliers pushing them through the process in
person. The assumption is that “chasing” will not be successful without bribes,
commonly known as the “kitu kidogo” or “speed money”.

Financial Framework: Most banks in the country have international connections.

They are able to issue letters of credit, bid bonds and other guarantees for
compliance with tenders. The credit worthiness of the banks is guaranteed in that
the Bank of Uganda supervises and ensures that only credit worthy and
professionally managed banks are licensed to operate in the country. High interest
rates (e.g. 18% – 25%) appear to be a hindrance for national suppliers to access
credit. Similarly, some national bidders find the 10% requirement for bid bond too
high, and they end up not participating in tenders advertised locally.

The Institutional Framework: The Central Tender Board (CTB ) was the main
overseer of the public procurement process in Uganda. The CTB derived its
authority from the Tender Board Regulations of 1977 established under the Public
Finance Act. Cap. 149. The Central Tender Board was established to regulate and
control:

 The purchase or sale of government stores and equipment; and

 The award of government contracts for goods` services or works.

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It approved purchases submitted to it by procuring entities. Such procurements
were for goods, works and services above the threshold of Shillings 1 million for
goods and Shillings 2 million for works and services.

The Government Central Purchasing Corporation (GCPC) was set up by Statute

No. 3 of 1990. The objectives of the GCPC were to procure government goods
and services at the fairest prices, to ensure government gets value for money
and to carry out the procurement functions expeditiously. It acquired goods,
supplied them to government departments and advised government on
procurement policy and practices.

The Swiss Procurement Company (SWIPCO), a private contractor, performed the

following functions under Contract with the Ministry of Finance:

 Advised the CTB to ensure that the professional capacity of the Board
is strengthened and extended;

 Assisted procuring entities in preparing tender documents, performing

evaluations, drafting contracts and supervising contract performance;
and

 Provided training on procurement to staff at different levels of

government.

Local governments – the district administration also engaged in public

procurement through the District Tender Boards. The local governments
Financial and Accounting Regulations 1998, which derived from the Local
Government Act 1997, regulated these. Goods and services in districts are
procured through these Tender Boards.

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 The Police Tender Board was created by The Police Statute No. 3 of 1994 for
procuring goods works and services for the police force. Procurements
conducted through the Police Tender Board did not have to go through the
Central Tender Board.

The Military Tender Board was created by the NRA Statute No. 3 of 1992 to
cover supplies for the Army. Procurements conducted through the Military
Tender Board did not have to go through the Central Tender Board.

Weaknesses: Despite its implicit strengths, the old system also had a number of
weaknesses.

1. The Central Tender Board, which oversaw the procurement process in the
country, had a set of disparate, (in the sense that the District Governments
were not covered) and outdated procurement regulations and procedures.

2. The responsibility for procurement was inconsistent among various

procuring entities within the system.

3. The government system operated through cash budgets that, because of a

lack of coherent management attention to problems caused by this in the
procurement area, made it an unreliable business partner. These problems
were compounded by impoverished management practices in the
procurement sub-system both at the central and district administrations.

4. Bureaucratic delays and lack of institutional co-ordination characterised the

current procurement system in the country.

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C. OBSERVATIONS ON NEEDS

5. Malpractice and unethical conduct also saddled the system. There was a
high incidence of vested interests, interference and insider dealings. There
were occasional cases of retroactive approvals of contract awards.

6. Procurement knowledge and expertise at policy and operational levels were

inadequate. This implies that the personnel involved were severely
handicapped concerning the requisite procurement skills. Analysis had also
revealed that apart from World Bank documents, the procurement system
in the country lacked standard documents for use in specific contract
situations.

The lack of focus in the existing regulations and guidelines were giving rise to
decisions, which were devoid of objectivity, accountability and transparency
and resulted in a high incidence of corruption and high expenditure.

The Task Force found the following needs:

 A comprehensive legal framework and a coherent set of

regulation/guidelines - these regulations/guidelines should focus on the
entire supply-chain management process.

 Effective monitoring and auditing to ensure compliance with

regulations/guidelines and performance.

 This calls for establishment of a management organisation to

manage a restructured procurement system.

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D. TASK FORCE SUMMARY OF REORGANISATION NEEDED

 Standard terms and contracts.

 Tenders should be open and advertised.

 Well co-ordinated procedures to make the system more transparent and

streamlined.

 Sanctions to enforce professionalism and to punish offenders

causing losses.

 Procurement expertise in each procuring entity.

 A deliberate effort is needed to develop capacity through

organised staff training.

The Task Force proposed as follows:

1. The proposed organisation review of the public procurement system should

be harmonised with the on-going restructuring exercise in the civil service
especially as it affected the Central Tender Board.

2. The Task Force proposed that a National Procurement Policy Unit (NPPU) be
established and that the CTB be restructured to perform all the functions of
the NPPU set forth below. The restructured CTB would also take over the
advisory function of GCPC after its privatisation. The tender awarding
functions hitherto undertaken by CTB should be taken over by the new

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 Ministry Contracts Committees. Thus the restructured CTB would be a
policy body with specific functions of monitoring, the public procurement
system through other entities.

3. The establishment of a restructured CTB as the NPPU would be effected

through regulations under the Public Finance Act.

4. NPPU would thus take the budgetary allocations for the restructured CTB.

5. It was proposed that the restructured body should have the following
features:-

(i) It should be free of political interference.

(ii) The relationship between this body and other procurement entities
should be clear.

(iii) The body should also provide for the use on a value-added basis of
third party agencies (internal or external to the Government) to offer
expert advice to all entities.

(iv) The NPPU would be an autonomous unit deriving funding from both
the consolidated fund and through levies and service charges.

(v) The proposed body would have an organisation structure that

reflects the new functions and status.

(vi) The proposed body would also have a Consultative Committee

composed of major stakeholders in the private and public sectors to
advise the Director, NPPU on matters concerning the overall

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 functioning of the public procurement system. The Committee would
be composed of no more than 12 members from various disciplines
and oriented towards the procurement profession.

6. The membership of contracts committees to be created should consist of

civil servants principally drawn from within the Ministry or procuring entity.

7. Contracts committees are preferred to Tender Boards because in addition to

Tender Board work, they will monitor progress of contracts approved.

E. ROLE OF THE NATIONAL PROCUREMENT POLICY UNIT (NPPU)

Sustained management advice and assistance to support budgetary considerations

in the area of expenditures for public procurement must be provided. This was to
be best provided through a central procurement management and policy office,
the National Procurement Policy Unit. The NPPU was to be located within the
Ministry of Finance. The head of the unit was to be graded at a level (e.g. Director
level), which would ensure that NPPU could meet its responsibilities to Ministries
and other procuring entities. The responsibilities for the NPPU included:

Develop Procurement Policies: This function included the issuance of:

 Policies at the macro level covering matters like participation in international

trading agreements, use of international technical standards, preference for
domestic industries and the application of environmental purchasing.

 Policies covering professional practice including contracting procedures,

measurement of performance by the procuring entities, measurement of

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 suppliers performance, supplier qualification procedures and supplier
relationships.

Develop Procurement Regulations and Procedures: This function included:

 The development, maintenance and updating of procurement law, regulations

and procedures;

 The dissemination of legal and regulatory updates and amendments;

 The development of training materials on the requirements of the Law,

Regulations and Procedures;
 Compliance with procurement law, regulations and procedures

 Developing and maintaining standard tender documents and standard

conditions of contract;

 Providing help and advice to the contracting entities; and

 Establishing financial thresholds as required by law or regulation.

Promote Professional Practice: There was a need for a co-ordinated

approach to procurement if the government was to achieve best value in its use
of public funds. This co-ordination could be provided within a central policy unit,
which, while recognising individual authority in the procuring entities, worked
with these entities to:

 Develop and disseminate recommended procurement policies;

 Set professional standards;

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  Develop a “code of business ethics";

 Provide professional advice and support to the individual procuring

entities;

 Issue “good practice guides” in relation to procurement;

 Undertake research into the needs of procuring entities;

 Undertake research into domestic and international sources of supply;

 Develop a data base of information on which to base procurement

decisions;

 Operate a professional development scheme for staff with purchasing and

contracting responsibilities, including adherence to proper ethical
standards;

 Promote economy by facilitating rationalisation of demand and intra-

government contracting by means of “call off” and “running/ framework”
contracts; and

 Rationalise standards for the procurement of information systems and

equipment.

Obtain Economic Benefits of Scale: Within the public sector, many individual
procuring entities purchased similar goods and services. With few exceptions,
those were being purchased independently with contract notices appearing in the
national press on the same day for the same items from different procuring
entities. If these purchases could be aggregated, it would result in prices that are

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more competitive, lower operating and maintenance costs and improved service
for the procuring entities. It would also encourage domestic manufacturers to
invest in plant and equipment.

Procurement responsibilities should remain within the procuring entities but joint
contracting should take place where appropriate and beneficial to the parties
involved. Experience in other countries has shown that for joint contracting to
be successful, procuring entities must work together to rationalise requirements,
agree on contract specifications and determine who will be responsible for the
contracting process.

The NPPU would help meet these challenges through a facilitating role to:

 Identify through its research function products or services purchased by

more than one procuring entity that would benefit from joint contracting;

 Set up contracting working parties and invite members from the

participating procuring entities;
 Act as secretariat to the working parties; and

 Report on results including savings achieved.

Joint contracts may be in the form of:

Call Off Contracts: These are contracts under which a defined quantity of
goods would be produced by the supplier and held in stock for ordering as and
when required by individual purchasers, usually within a defined period

Framework Arrangements: These are arrangements covering a given period

during which a supplier will provide goods, services or works to an agreed

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specification at an agreed price with agreed service levels. Contracts are formed
when individual orders are placed against the arrangement

For these contract arrangements to operate successfully, the participating

procuring entities must have ownership and commitment to the process. This
can best be achieved by their involvement in all contracting activities: from
production of specifications through to contract award and performance
monitoring. In practice for each contract, only one entity will be responsible for
letting the contract. This will usually but not necessarily be the largest purchaser.
Whoever undertakes the process must agree on the contracting decisions with
the other participants. For the framework arrangements an estimated quantity of
requirements to be purchased during the contract period must be made known
to the tenderers. Also, there should be a facility for the contract/arrangement to
provide choice of product or service if this is required by individual procuring
entities. The process will not work well if standards are dictated to individual
purchasers. Variable prices for different purchase quantities, different
geographical locations and different service levels may be established. However,
for this arrangement to work, there must be a clear commitment to use the
contracts by the participating entities.

Ensure Professional Input Into The Contracting Process: Procuring

entities should train and develop professionally qualified staff for public sector
procurement. To do this, it will be necessary to:

 Maximise the use of existing resources, possibly by developing a

specialised multi-disciplinary contracting team that could provide
professional advice and assistance to individual purchasing entities for
major contracts. The responsibility for the contracting process, the
contract award and the contract performance would remain with the

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 procuring entity. It would be a central function to co-ordinate this
process.

 Employ external consultants to advise and assist with the contracting

process. The selection of consultants for this work would be undertaken
by means of competitive tenders in accordance with the procurement
legislation. Help in this process would be available from the central
advisory function. Help individual procuring entities undertake this
process, it is recommended that the central policy unit issue guidance on
best practice in “contracting for consultants”.

Promote Effective Domestic And International Competition By Qualified

Suppliers: To obtain best value, quality and service it is good procurement
policy to encourage the most competitive and able suppliers to tender for your
contracts. To achieve this objective, the NPPU and procuring entities must
emphasise:

 Procedures which are fair, non discriminatory and transparent;

 Compliance by the purchaser with their obligations under the contract

including the “terms of payment”;

 Standard conditions of contract;

 Requirements which are clear-- using performance and international

specifications where possible;

 Rationalisation of needs and aggregation of demand to facilitate economic

manufacture;

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  Use of framework and call off contracts;

 Use of long term contracts “two or three years” to encourage investment;

 Good working relationships and trust between purchasers and suppliers.

Model guidelines for developing good relationships.

Develop Management Information: A constituent part of any function must be

the collection and management of information. Among the data that procuring
entities should provide routinely are:

 the number and monetary value of contracts awarded during the year (or for a
shorter period of time);

 the extent of competition; and

 the types of articles purchased.

Establish a Disqualified Suppliers Database: There is a need to maintain a
database of suppliers who have been disqualified by procuring entities so that all
procuring entities have access to this information as part of their supplier
assessment procedures.

F. PROGRESS TO DATE

The question is what has happened since these recommendations were made in
February 1999?

First, the Government accepted the findings of the Task Force and concurred with all
its recommendations in June 1999.

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Second, the Ministry, based on the Task Force recommendations, submitted in
November 1999 a Cabinet Document seeking the approval of the Cabinet Minister to
proceed with the creation of a Procurement Reform Implementation Unit (PRIU) in
the Ministry and to task it with their Implementation of the Task Force
recommendations. This was approved in January 2000.

Third, key activities on the reform agenda of the PRIU have found reflection in the
Poverty Reduction Support Credit (activities and outputs) Matrix, thereby committing
the Government to execute the reform activities within a given time table acceptable
to all stakeholders, inclusive of the donors.

Since the approval of the Cabinet Memorandum on the Procurement Reforms, the
Government has proceeded with the timely implementation of the key reform
activities. These are evident from the:

(i) promulgation of the Public Finance (Procurement) Regulations (Statutory

Instrument) in March 200 which came into effect in May 2001, ad a
transitional step to an Act;

(ii) appointment of senior Management personnel to the PRIU to prepare for the
transition from a Central Tender Board structure to an autonomous
authority;

(iii)enactment of a law to replace the Statutory Instrument in 2002;

(iv)issuance of Regulations, Reporting Forms and Guidelines attendant on the Act

in 2003 in order to operationalise the system;

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 (v) preparation and release of standardised bid documentation for works,
services and supplies in three variants each for complex, medium and
simple procurement activities, respectively.

This is where we are in terms of the Reform Agenda at this point. Other key items
remain to be implemented. Sufficient to mention four critical ones. These are:

(i) Harmonization: The harmonization of procurement policies and practices

between the Central and the Local Government systems is a key activity. Two
prior conditions have to be satisfied before harmonization can take place.

 The first is the passing of the Procurement Bill by Parliament and the
promulgation of the attendant Regulations to the Bill. While the Bill seeks
to provide the legal basis for the harmonization (inclusive of regulatory
oversight by the PRIU for systemic performance of the Local Government
Procuring Entities), the real burden of harmonization will fall on the
attendant Regulations to the Bill. I am happy to inform the Review that
the PRIU has already prepared the draft Regulations to the Bill. Also, we
have had fruitful discussions with the Ministry of Local Government –
which is in possession of copy of the draft Regulations.

 The second relates to the capacities of the Local Government system to

operate under the draft Regulations in question under the harmonized
system. What are the precise institutional and manpower arrangements
and practices in place? Are these adequate, and if not, what corrective
measures are required? Should we wait until harmonization becomes
imminent before we begin to look into the problems, if any? To await the
passing of the Bill could seriously impair the Government’s quest to
subject public procurement at all levels of Government to standardized
best practices at the earliest possible opportunity. Hence, the PRIU is

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 proposing co-jointly with the Ministry of Public Service and the Ministry of
Local Government to conduct a rapid result survey to assess the realities
on the ground in the local government procurement system as an integral
part of its current Work Plan. This will enable the PRIU to establish what
types of support may be required to ensure compliance on the part of the
Local Government system with the new dispensation, once it comes into
place.

(ii) Benchmarking: The issue of benchmarking performance is another plank in

the Work Plan of the PRIU. The key justification for all reforms is that the
proposed changes will generate a stream of net benefits, however defined, to
the public (in excess of what the old system did). Otherwise there is no need
for innovation and change. How are these benefits to be specified in terms of
quantifiable outputs and or qualitative improvements and how is progress in
achieving them, or otherwise, to be objectively measured and verified from
one point to another? And how do we determine the final time horizon for the
full delivery of outputs and the intervals for measurements of progress? This
is not a simple exercise, even though it will have to be kept as simple as
possible, and it will have to be focused on the performance of the Procuring
Entities, the PRIU and the contractors. It is an exercise that will require the
inputs of many stakeholders groups, not least the oversight agencies, and it
is one that will preoccupy the PRIU in the current Financial Year.

(iii) Private Sector: In the design of the reforms, the focus has understandably
been, solely on the public entities of Government, based apparently on two
assumptions:

(a) public officials, are deviant in respect of procurement;

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 (b) efficiencies in procurement can only be achieved by improved
public performance.

Both of these may be true to some extent. But we must not lose sight of the
old adage that, “It takes two to tango”. Somehow, in the deliberations on the
reforms, we have not taken fully into account the private sector, particularly
the associations of the contracting community and the fact that they are the
other critical party to all procurement activities. Hence, the extent to which
the reforms will succeed in producing Value-For-Money and the benefit of
efficiencies and effectiveness, depends invariably on their cooperation in
changing the ways in which they do business and by having them adopt
higher standards in contracting with the Procuring Entities.

The issue here is ‘Where do we start?’ In the public domain, information on

the market place is limited. We have no database on procurement input
prices, be they for works, services or supplies. Moreover, there is very
limited information available on the sizes, core competences and performance
record of providers. Nor do we have any idea as to which associations
represent which contracting group and how many contractors belong to
which associations. The void in market information is a serious handicap in
terms of the PRIU developing a constructive dialogue with the private sector
in order to come up with an operational plan to improve market information
and private sector participation public procurement and in promoting best
practices. The development of such a scheme is an important strand of the
current PRIU Work Plan. It is envisaged that the focus of the scheme will be
on:

(a) developing a Contractors’ Register based on proven capacities,

recognized, core competences (disciplines) and objective
performance record;

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 (b) preparing a database on providers’ prices;

(c) working with the Associations of Contractors to develop a code of

conduct, have their members adhere to it, and discipline errant
contractors for non-compliance;

(d) instituting mechanisms for the sharing of information on market

conditions and procurement opportunities; and

(e) networking institutions capable of providing sustainable training in

procurement over the long-term.

(iv) Stakeholders: An issue of much concern to the PRIU, and which constitutes
another element of its Work Plan, is stakeholder connectivity. Procurement
reform, as with all reforms in the governance sector, has many partners
linked to the process, whether:

(a) directly;

(b) indirectly;

(c) public interest bodies.

Each partner which has a specific role to play in the process. The direct
partners are the Procuring Entities and the contractors. The indirect ones fall
into three groups:

(a) the regulatory and oversight bodies, i.e., the IGG and Auditor
General and the PRIU;

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 (b) subject entities, i.e. the Ministry of Public Service, the Ministry of
Local Government and the PRIU;

(c) the donors and the Ministry/regulatory authority (PRIU), the

Ministry of Public Service and the Ministry of Local Government.

Finally, there are the public interest groups, largely the Non-Governmental
Organizations, which perform a dual role of remote monitoring of procurement
performance by Procuring Entities and a direct advocacy role for the adoption of
best practices in public procurement. An efficient and effective system must
develop institutional inter-linkages between all interested parties and structured
mechanisms for periodic exchange of information on different aspect of systemic
performance in order to continuously infuse the system with best practices. The
PRIU is working assiduously to put structures in place to take advantage of the
synergies such cooperation will invariably offer.

Once the institutional and legal framework is completed, hopefully by the end of
this calendar year (2003), the focus will then shift completely onto the
operational dimensions of the Authority and the Procuring Entities in order to
enable the reform system to deliver fully on its mandate.

This is not to say that the PRIU is not providing a stopgap operation. It is in
order to prevent a regulatory vacuum from developing in the system. But it can
be no substitute for the authority itself. More importantly, it recognises that two
critical functions of the authority will be in order for the new system to function:

(i) the building of capacity (institutional and human) in the procuring

entities: which are nor completely responsible for the execution of
their entire procurement budget – and has taken far reaching

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 measures in this regards both in terms of modular (a) instructional
training and (b) on-the-job transfer of skills; and

(ii) the exercise of its audit, inspection, investigation and review functions
as a regulatory body. Here again, action has been taken to ensure that
this capacity will be in place.

Where we may be behind is in the development of the allied and related

capacities of the authority to be created in preparation for it to be fully
operational once the new Act is brought into effect. Outstanding agenda items in
this regard are the appointment of staff, the development of database, the
introduction of a computerised WAN and LAN information dissemination and
network systems to publicise procurement opportunities and award decisions,
e.t.c.,

But no doubt significant progress has been made to date and to o small measure
due to the combined assistance of the contracting community and donors. In the
context of the latter, we have found the Procurement Technical Working Group,
comprising of donors and Government, to have been a most useful consultative
mechanism in assisting the PRIU to moving the reforms focus in respect of its
activities and outputs schedule as we have found the PRSC Matrix.

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