RESTRICTED
WORLD TRADE WT/WGTGP/M/1
15July1997
ORGANIZATION(97-2947)
Working Group onTransparency
inGovernment Procurement
REPORT ONTHE MEETING OF23MAY 1997
Note bytheSecretariat
1. TheWorking Group onTransparency inGovernment Procurement helditsfirstmeeting on
23May1997 under theChairmanship ofAmbassador Werner Corrales Leal.
2. Theagenda forthismeeting consisted ofthefollowing items: (i)existing international
instruments andactivities; (ii)organization ofwork; (iii)arrangements forcooperation withother
intergovernmental fora; (iv)general statements.
Existing international instruments andactivities
3. Presentations were made bytherepresentatives oftheUNCITRAL andtheWorld Bank on
therelevant instruments andactivities relating togovernment procurement intheirorganizations. The
Working Group expressed itsappreciation forthesepresentations. Documents WT/WGTGP/W/1 and
WT/WGTGP/W/2 contain thepresentations oftherepresentatives oftheUNCITRAL andoftheWorld
Bank, respectively. Theannex tothisnotecontains arecord ofthespecific comments made and
questions raised withregard tothese presentations andtheanswers provided bytherepresentatives
oftheorganizations.
Organization ofwork
4. Onthebasisofconsultations withMembers, theChairman proposed thefollowing regarding
thework oftheGroup. TheGroup would limititself forthetimebeing totheorganization ofthe
work required under thefirststage ofitsmandate under theMinisterial Decision, namely thestudy
oftransparency ingovernment procurement practices, taking intoaccount national policies. TheGroup
would request theSecretariat toprepare apaper presenting factual information ontheprovisions related
totransparency ininternational instruments ongovernment procurement procedures (e.g.UNCITRAL
ModelLawonProcurementofGoods,ConstructionandServices;WorldBankProcurementGuidelines;
thePlurilateral WTO Agreement onGovernment Procurement) andinWTO agreements. Given the
widespread viewthatawayshould befound oftaking advantage oftheinformation collected onnational
practices byother bodies, theGroup would asktheSecretariat tomake contact withAPEC andthe
FTAA toinvite them tomake available whatinformation theycould share withtheGroup regarding
thesurveys theyhadundertaken. Asforthereplies tothequestionnaire oftheWorking Party onGATS
Rules, these werealready available intheS/WPGR/W/- series ofdocuments. Asregards thetiming
ofmeetings, theGroup would holditsfirstfull-scale substantive meeting on21and22July1997.
TheGroup would takeadecision onasubsequent meeting ormeetings thisyearinJuly, bywhich
timeitwould haveaclearer ideaastotheamount ofwork thathadtobeundertaken. Finally, the
Working Group would notetheviewofanumber ofdelegations thatthemandate ofthisGroup was
independent ofthose oftheGATS Rules Group andtheCommittee onGovernment Procurement.
While thisGroup 'sindependence should bemaintained vis-à-vis theGATS Rules Group, theChairmanWT/WGTGP/M/1
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would seektomaintain contact withtheChair ofthatGroup soastofacilitate anynecessary coordination
onpractical matters.
5. TheWorking Group agreed toproceed assuggested bytheChairman.
6. TheChairman encouraged delegations tosubmit written contributions.
Arrangements forcooperation withother intergovernmental fora
7. TheWorking Group noted thattheIMFandtheWorld Bankhadobserver status inthisWorking
Group pursuant tothecooperation agreements concluded bytheWTO withthese organizations
(WT/L/195) andagreed thatrequests forobserver status fromother intergovernmental organizations
would beconsidered inaccordance withthenormal guidelines forobserver status forinternational
intergovernmental organizations intheWTO (WT/L/161, Annex 3).TheGroup agreed toinvite
UNCITRAL toattend itsnextmeeting.
General statements
8. After theconclusion reached ontheorganization ofwork, some Members tooktheopportunity
tomake remarks ofageneral nature. Itwasstated thatinitsfurther work theGroup would needto
clarifytheelementsthatconstitutedtransparencyingovernmentprocurement.Theinformationgathering
andanalysis phase oftheGroup 'smandate would facilitate theidentification ofthese elements. A
wideparticipation ofMembers inthework oftheGroup wasurged andthehopewasexpressed that
many delegations would bring forward views andproposals thatwould guide theGroup inproceeding
withthestudy phase ofitswork.
9. Regarding coordination ofwork withthatoftheWorking Party onGATS Rules, thepoint
wasmade that,notwithstanding theseparate mandates ofthetwofora,theduplication ofwork inthis
areashould beavoided byallowing thepossibility ofexchanging information ontherespective work
ofthetwofora.
10. Thedelegation ofJapan introduced anon-paper regarding thedevelopment ofelements on
transparency ingovernment procurement. Inresponse toaquestion, therepresentative ofJapan clarified
thattheviews expressed inthepaper were based onJapan'sexperience withtheimplementation of
therelevant provisions ofitsdomestic lawsandregulations inforce, including theprocedures relating
toanenforcement mechanism which hadbeen established under theAgreement onGovernment
Procurement.WT/WGTGP/M/1
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ANNEX
Comments Made andQuestions Raised inRespect ofthePresentations Made bythe
Representatives oftheUNCITRAL andtheWorld Bank
UNCITRAL
1. Inresponse toaquestion onhowmany countries hadincorporated theModel Law, either in
whole orinpart,intheirlegislation, therepresentative ofUNCITRAL responded thatbetween 15to
20countries either hadcompleted orwere inthemidst ofthelegislative process necessary forthe
application oftheModel Law. Thecountries witheconomies intransition constituted themaingroup
ofcountries using theModel Law, buttheModel Lawcould wellbeapplied inother countries and
regions.
2. Inresponse toaquestion onthereason whytheModel Lawhadnotbeenusedasabasis for
theprocurement legislation inmore countries, therepresentative oftheUNCITRAL responded that
theModel Lawhadonlybeenconcluded in1994 and,given thelimited timesince then, hadbeen
usedrather extensively. Harmonization andmodernization ofnational lawsintheframework of
international conventions wasalengthy process.
3. Inresponse toaquestion onwhether government representatives participated inthework of
theUNCITRAL, therepresentative oftheUNCITRAL responded thattheCommission wascomposed
ofrepresentatives ofgovernments. Government representatives hadalsobeendirectly involved inthe
preparation oftheModel Lawwhich theirgovernments hadsubsequently agreed byconsensus. During
theinitial drafting stage oftheModel Law, theUNCITRAL Secretariat hadoccasionally consulted
experts inaparticular fieldbutthese experts hadoften beengovernment officials ordelegates. The
governments 'involvement intheinitial drafting stage ofthelegislative instruments ofUNCITRAL
wasakeytothesuccess oftheiradoption.
4. Inresponse toaquestion onthewaytheModel Lawwasdifferent from theWorld Bank
Guidelines, therepresentative oftheUNCITRAL responded thatthescope oftheModel Lawwas
broader. TheModel Lawwasalegislative instrument forusebygovernments asabasisfortheirnational
lawsapplicable toalltheirprocurement activities, whereas theWorld Bank Guidelines weredesigned
specifically forprocurement under projects financed byWorld Bank loans. Moreover, byvirtue of
itsadoption bygovernments through theUNdecision-making process, theModel Lawcould beseen
ashaving aparticularly significant juridical status. TheWorld Bank Guidelines hadjuridical effect
pursuant toloanagreements between theWorld Bank andtheBorrower countries given treaty status.
5. Aquestion wasasked regarding therange ofnational procurement lawsthatthedrafters of
theModel Laws hadusedasasource offactual information. Therepresentative oftheUNCITRAL
responded thattheprocess ofthepreparation oftheModel Lawhadbeeninitiated inthemid- to
late1980s withasolicitation bytheSecretary oftheCommission toallthemember states ofthe
United Nations andobserver governments requesting themtoprovide theUNCITRAL secretariat with
copies oftheirprocurement legislation. Thelarge collection ofnational procurement legislation thus
gathered hadbeenusedbytheUNCITRAL secretariat asaninput tothepreparation ofthebackground
studies andinitial drafts oftheModel Law.
6. Aquestion wasasked whether thedrafters oftheModel Lawhadconsidered adefinition for
theterms "public purchase", "public buyer" and"public sector". Therepresentative oftheUNCITRAL
responded thattherelevant article under theGeneral Provisions oftheModel Lawmerely indicated
thatthenational legislature would define theterm"procuring entity" forthepurposes oftheenactingWT/WGTGP/M/1
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lawinaccordance withthepublic lawoftheindividual enacting State. IntheGuide toEnactment
oftheModel Law, UNCITRAL indicated certain factors thatthelegislature might takeintoaccount
indetermining thetypeofentities thatshould becovered within thescope oftheModel Law.
7. Inresponse toaquestion onthescope oftheprocurement covered bytheModel Law, the
representative oftheUNCITRAL responded thatthedifferent methods ofprocurement setforth in
theModel Lawwereintended toapply asbroadly aspossible togoods, works andservices. Thedesign
ofaprocurement method forintellectual andconsultancy services intheModel Lawwasauseful
contribution ofUNCITRAL tothedevelopment oflegislation onprocurement.
8. Aquestion wasraised astowhether theModel Lawsetforthprocedures fordispute settlement
andforarbitration. Therepresentative oftheUNCITRAL responded thatChapter VIoftheModel
Lawprovided model provisions fortheestablishment ofareview mechanism tohandle complaints
bybidders whoconsidered thattheyhadnotbeentreated inaccordance withtherequirements ofthe
Model Law. Thereview mechanism intheModel Lawwasessentially athree-stage process. Inthe
firstinstance, thereview wastobesought, prior totheentry intoforce oftheprocurement contract,
through adirect petition totheprocuring entity itself. Thisinitial stephadbeenincluded toallow
theresolution oftheproblem between thecomplainant andtheentity before thematter wassubmitted
toanadministrative review body. Finally, theModel Lawgaveanaggrieved bidder therighttoseek
judicial review. TheModel Lawdidnotprovide indetail therequirements forajudicial review process
because themandate oftheCommission didnotextend toanymatters thatmight involve impinging
inthisrespect onnational lawsandprocedures. Withregard toarbitration, while theModel Lawdid
notpreclude astatefrom providing arbitration inthecontractor selection phase, itdidnotexpressly
envisage arbitration atthatstage ofthegovernment procurement process. Arbitration hadamore
significant roleinsettling disputes thatrelated totheimplementation orperformance phase ofcontracts.
9. Inresponse toaquestion whether theModel Lawwasuniversally applicable byallcountries
irrespective ofthestage oftheirdevelopment, therepresentative oftheUNCITRAL responded that
thecomposition oftheCommission wasbased onageographical distribution formula oftheUNGeneral
Assembly which ensured therepresentation ofgovernments withdiverse economic andpolitical systems
initsdeliberations. While thereweredifferences inthewaymajor legalsystems intheworld treated
procurement, bycodifying those procurement practices recognized asthebestintheworld, theModel
Lawwassusceptible ofapplication bygovernments inallregions andatdifferent levels ofeconomic
development.
10. Inresponsetoaquestionontherelationshipbetweenex-anteandex-postelementsoftransparency
andthenotion ofpublic accountability, therepresentative ofUNCITRAL responded thattheModel
Lawcontained provisions thatwere designed toensure thatentities refrained from taking decisions
thatwereimportant toindividual bidder 'srights andtotheintegrity oftheentire procurement process
inanarbitrary orsecretive fashion. Forexample, theprocuring entity should include allrelevant
information about thequalification process intherecord ofprocurement proceedings and,when a
supplier 'sapplication toqualify wasrejected, theentity should provide thesupplier withthegrounds
forhisdisqualification. Afurther example oftransparency disciplines would bethataprocuring entity
thathadautomatically cancelled thebidofabidder whohadoffered animproper inducement toinfluence
theprocurement process hadtoinform thebidder ofitsdecision andhadtogivehimanopportunity
tochallenge anyunjustified decision.
11. Inresponse toaquestion whether UNCITRAL hadprepared anystudies onthetransparency
aspects ofgovernment procurement procedures, therepresentative oftheUNCITRAL responded that
while examination oftransparency aspects hadbeenattheheart oftheprocess ofpreparation ofthe
Model Lawandhadpermeated many ofthestudies andreports oftheworking group, there wereno
studies thatwere exclusively devoted tothetopic oftransparency.WT/WGTGP/M/1
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World Bank
12. Aquestion wasasked whether theWorld Bank hadbeen promoting thedevelopment of
government procurement legislation based onlegislative instruments suchastheUNCITRAL Model
Lawinthecontext ofstructural adjustment programs. Therepresentative oftheWorld Bankresponded
that,while there wasnodirect relationship between thedevelopment procurement legislation andthe
purpose ofstructural adjustment programs, modernization ofprocurement lawmight beincluded as
acondition ofastructural adjustment loanorofaninvestment loaninagiven Borrower country. The
World Bank provided technical assistance intheareaofgovernment procurement. Inaddition, agrant
from aspecial fundestablished bytheWorld Bank wasavailable forgovernments 'useofexperts in
thisarea.
13. Inresponse toaquestion onwhether theWorld Bank Guidelines were applicable toall
procurement financed byWorld Bankloansirrespective ofthesizeoftheprocurement, therepresentative
oftheWorld Bankresponded thattheInternational Competitive Bidding method wasusedforlarge-sized
procurement contracts. Forcontracts ofsmall value, theloanagreements allowed theprocuring
government toapply itslocallaws, totheextent thattheprocedures under thelocallawsweresufficiently
clear andtransparent.
14. Inresponse toaquestion ontheguidelines usedbytheregional development banks inthecontext
oftheirloanagreements, therepresentative oftheWorld Bank responded thatthebasic principles of
theguidelines oftheregional banks wereessentially thesame asthose oftheWorld Bank Guidelines.
Inparticular therequirements ontransparency intheguidelines oftheregional banks wereverysimilar
tothose setforth intheWorld Bank Guidelines.
15. Aquestion wasasked astothereason fortheexistence oftwoseparate World Bank Guidelines
forprocurement ofgoods andworks andforselection andemployment ofconsultants, respectively.
Therepresentative oftheWorld Bank responded thatdifferent principles applied toprocurement of
goods andworks andprocurement ofintellectual services. Price wasthemain evaluation criterion
inpurchasing goods orworks. Therefore, opencompetitive bidding wasthebestmethod forthistype
ofprocurement. Ontheother hand, itwasuniversally agreed byspecialists onprocurement thatopen
competition based onprice wasnotthebestwayofprocuring intellectual services, which essentially
consisted oftheexperience, knowledge andadvice ofconsultants. Since itwould notbefeasible for
thepublic purchaser toevaluate proposals fromallbidders worldwide whohadthenecessary experience
toprovide acertain intellectual service, theprocuring authorities usually established ashortlist of
consultantswhowouldbecapableoffulfillingthetermsofreferenceinquestion.Thoseserviceproviders
wereaskedtosubmittheirproposalswithadetailedexplanationoftheirexperience,staff,workplan,etc.
Theproposals wereevaluated byusing amethodology according towhich merit points wereallocated
toquality andprice. Thetotalscore wasobtained byadding uptheweighted quality andpricescores,
where price wasgiven alower weight thanquality. Thebidder withthehighest points would then
beinvited tonegotiate thecontract.
16. Inresponse toaquestion onwhether anyservices other thanintellectual services werecovered
bytheGuidelines ongoods andworks, therepresentative oftheWorld Bank responded thatthe
Guidelines alsoapplied toservices which were bidandcontracted onthebasis ofperformance ofa
measurable physical output suchasdrilling, mapping andsimilar operations. Theprinciples applying
totheprocurement ofsuchservices weresimilar tothose applying totheprocurement ofcivilworks.
17. Inresponse toaquestion onwhether thelistofconsultants shortlisted bytheBorrower
government hadtobeendorsed bytheWorld Bank, therepresentative oftheWorld Bank responded
thatwhile governments established theshortlist, theWorld Bankhadtoagree thattheconsultancy firmsWT/WGTGP/M/1
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ontheshortlist hadthenecessary experience andqualifications tofulfiltheterms ofreference inquestion
andthatthere wasanequitable geographical spread among theshortlisted firms. Incases where
governments didnothavethenecessary knowledge orexperience todevelop ashortlist, forexample
foraconsultancy service ofahighly specialized nature, theBank would bewilling, attherequest
oftheBorrower, tosuggest ashortlist ofconsultants. Forthispurpose, theBank would normally
setupanadhoccommittee ofBank staffmembers todraw upthelist.
18. Inresponse toaquestion onwhether theWorld Bank Guidelines onSelection andEmployment
ofConsultants contained different requirements ontransparency, therepresentative oftheWorld Bank
responded that,totheextent possible, those Guidelines incorporated thesame basic principles of
transparency astheProcurement Guidelines. Forinstance, atthestage ofinvitation ofproposals from
consultants, the"Information forConsultants" document must provide adequate information onthe
selection procedures including alisting ofthetechnical evaluation criteria andother factors thatwould
beapplied intheevaluation ofproposals. Thiswould enable aconsultancy firmtoassess thepoints
thatitshould emphasize andshould enumerate inthepreparation ofaresponsive proposal. However,
there werenodetailed requirements foradvertising because bidding waslimited toshortlisted firms.
19. Inresponse toaquestion onwhether theWorld Bank hadstudied thecostofpromoting
transparency inprocurement procedures anditsshare inthetotalvalue ofcontracts, therepresentative
oftheWorld Bank responded that,forbigcontracts, thecostofapplying transparency procedures was
negligible inproportion tothebenefits theBorrower achieved interms ofimproved competition and
therefore economy andefficiency inaprocurement process. Small contracts werenotsubject toany
extensive transparency procedures.
20. Aquestion wasasked onwhether thetransparency requirements contained inthenational
legislation ofcountries witheconomies intransition wentfurther thanthesimilar requirements inthe
World BankGuidelines. Therepresentative oftheWorld Bankresponded thatnewly developed national
legislation wasoften based ontheUNCITRAL Model Lawwhich hadcertain additional requirements
intheareaoftransparency. Forinstance, certain national legislation provided thatcontract awards
mustbeannouncedtoallbiddersthroughpublicationinthepress,whereastherewasnosuchrequirement
under theWorld Bank Guidelines.
21. Inresponse toaquestion onhowtheWorld Bank determined whether acontract should be
subject toaprior review orapostreview, therepresentative oftheWorld Bank responded thatthe
Bank applied prior review toexpensive orcomplex contracts. However, because itwascostly and
time-consuming, theBankusedthepriorreview process onlyforprocurement above acertain setvalue.
Thisvalue waslower inthecaseofcountries withlimited experience withprocurement. Theprior
review oftheBankassisted theBorrower country inensuring theregularity oftheprocurement process.
There wasnowatendency tousepostreview more often. Interestingly, some countries found the
prior review sohelpful thattheysometimes asked foritwithout being contractually obliged todoso.
22. Inresponse toaquestion onhowtheWorld Bank Guidelines treated preferences granted to
domestic suppliers, therepresentative oftheWorld Bank responded thattheWorld Bank Guidelines
recognize thatmany governments grant preferences toprotect theirdomestic manufacturers inpursuit
ofeconomic orsocial policy goals. Under therulesoninternational competitive bidding, governments
wereallowed togrant amargin ofpreference todomestic bidders inprocurement ofgoods which was
equivalent totheapplicable import dutyor15%ofthevalue ofthecontract ifimport duties exceeded
15%ofsuchvalue.
23. Inresponse toaquestion onwhether domestic preferences werecompatible withtheprinciple
oftransparency, therepresentative oftheWorld Bank saidthatgiving domestic preferences didnot
violate theprinciple oftransparency provided thattheprocurement legislation andthebidding documentsWT/WGTGP/M/1
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stated theexistence ofanysuchpreferences. TheBank would notallow agovernment toapply a
preference toaprocurement unless thebidding document indicated clearly thatintheevaluation of
thebidinquestion thelocalbidders would getthebenefit ofamargin ofpreference. However, by
increasing thecostoftheproject foragencies incharge ofproject execution, granting ofdomestic
preferences conflicted withtheobjective ofeconomy andefficiency inprocurement -getting thebest
possible value forprice inaparticular procurement.
24. Inresponse toaquestion onwhether theBank hadcarried outastudy onthedistribution of
theprocurement contracts financed byWorld Bank loans among national andforeign firms, the
representative oftheWorld Bank saidthattheAppendices totheWorld Bank Annual Report contained
thelistsofprocurement contracts bytypes ofgoods andworks andalsoshowed thedistribution of
contract awards between localandforeign suppliers/contractors.
25. Aquestion wasasked onwhether theWorld Bank hadencountered anycases ofalleged and
proven cases ofcorruption intheprocurement activities under aproject financed byaWorld Bank
loanandhowtheBank dealtwithsuchasituation. Therepresentative oftheWorld Bank responded
thattheWorld Bankconsidered thattherewasessentially noroom forcorruption incaseofprocurement
ofgoods andworks ifthedetailed rules ofInternational Competitive Bidding were followed ina
procurement process. Theprior review bytheBank alsoensured theregularity oftheprocess.
Moreover, theavailability ofinformation ontherules ofprocurement made thewhole process
self-enforcing since bidders would notify theBank ofanyattempt atirregularity byabidder and/or
aprocurement official. TheWorld Bank would intervene withtheBorrower toensure thatitwould
withdraw anyrecommendation thatwasnotinfavour ofthebidder withthelowest evaluated bid.
IftheBorrower country insisted onitsdecision, theBankwould refuse tofinance thecontract inquestion
andcancel theportion oftheloanallocated totheprocurement bydeclaring misprocurement. Under
theProcurement Guidelines andunder theGuidelines forSelection andEmployment ofConsultants,
theBank would declare asupplier orconsultant ineligible tobeawarded acontract financed bythe
Bank, either indefinitely orforastated period oftime, iftheBank determined thatthesupplier or
consultant hadengaged incorrupt orfraudulent practices. TheWorld Bank hadcome across anumber
ofcasesofcorrupt activities inthisarea. Inonecase,amajor consultancy firmhadsubmitted fraudulent
curricula vitaeofitsstaffandhadfalsified documents consistently, thuswinning contracts fraudulently
overtheyears. Thatfirmhadbeenblacklisted foraperiod oftwoyears.
26. Acomment wasalsomade thatthepractices ofcountries seemed tovary inrespect of
commissions paidingovernment procurement. Certain countries specifically prohibited thepayment
ofcommissions inpublic tendering while incertain other countries itappeared thatcommissions were
tax-deductible aspartofoverall costs. Therepresentative oftheWorld Bank responded thattheWorld
Bankhadamended theGuidelines inAugust 1996inorder tofightcorruption andfraud more intensely.
Under thenewrules, afirmwould beblacklisted iftheBank atanytimedetermined thatthefirmhad
engaged incorrupt orfraudulent practices incompeting fororinexecuting aBank-financed contract.
Atthesame, theBankrequired thataprovision beincluded inbidding documents requiring thatabidder
declare inthebidform whether hehadorhadnotpaidacommission incompeting forthecontracts
andgiving details onthepurpose ofthecommission, towhom itwaspaidandtheamount paid.
However, theWorld Bank Guidelines didnotpreclude abidder from paying commission feestoan
agent forhandling aprocurement contract. Thecommission would naturally beincluded inhisprice
bythebidder, thereby increasing theoverall price anddecreasing thechances ofthebidder towin
thecontract. Asomewhat related problem wasthefactthatmostcountries stillallowed theirnationals
totreatbribes paidtoforeign officials astax-deductible business expenditures. TheOECD wasworking
onthisproblem aspartoftheiranti-corruption efforts.