Highlights of Public Procurement Act of Nepal : Public Procurement Law

This article outlines the basic highlights of the (i) Public Procurement Act, 2007 (2063), (ii) Public Procurement Regulation, 2007 (2064) and  (iii) their amendments. Public Procurment laws are enacted to enhance transparency, objectivity, and reliability in public procurement of Nepal. The purpose of this Act is to maximize the value of public spending by promoting competition, fairness, honesty, and accountability while improving procurement capabilities and ensuring equal opportunities without discrimination, all in support of good governance.

 

The principal law governing the public procurement in Nepal are as mentioned:

a. Public Procurement Act 2007 (2063) (“PPA”).

b. Public Procurement Regulation 2007 (2064). (“PPR”)

 

The Public Procurement Monitoring Office (“PPMO”) the main regulating authority on Public Procurement in Nepal.

 

As per the Sec. 2(a) of PPA, “Procurement” means acquisition of any goods, consultancy services or other services or carrying out or causing to be carried out any construction works, by a public entity pursuant to public procurement act.

 

As per 2(c) of PPA, “Goods” means goods of any kind, whether movable or immovable, living or non-living, and this term also includes services incidental to the supply of such goods.

 

As per Section 2(e) of PPA, “Consultancy services” means any study, research, survey, design, drawing, supervision, training, testing, software development service or other intellectual or professional service of similar nature.

 

As per Section 2(f) of PPA, “Other Services” means the act of hiring motor vehicles, equipment or goods, carriage or repair and maintenance of goods.

 

As per Sec 2(g) of PPA, “Bid” means a document setting out price, proposal or rate submitted by a bidder in the format specified by a Public Entity as per the notice published by that entity for procurement.

 

 

Public entities engaged in public procurement are required to comply with public procurement laws. As per Section 2 (b) of PPA, “Public Entity” means the following entity: -

 

a. Constitutional organ or body, Court, Ministry, Secretariat, Commission, Department of the Government of Nepal or any other Governmental Entity or Office thereunder,

b.  Corporation, Company, Bank or Board owned or controlled fully or in majority by the Government of Nepal or Commission, Institute, Authority, Corporation, Academy, Board, Center, Council established at the public level or formed by the Government of Nepal under the laws in force and other corporate body of a similar nature,

c. University, College, Research Center, which is operated by the Government of Nepal or receives grants fully or in majority from the Government of Nepal, and other Academic or Educational Institution of a similar nature,

d. Local body,

e. Development Board formed under the Development Board Act, 1956,

f. Body operated with loan or grant of the Government of Nepal, and

i. Other Bodies as specified by the Government of Nepal by publishing a notification in the Nepal Gazette, as a Public Entity.

 

Public entities must adhere to the public procurement law when acquiring the following within public institutions:

a. Procurement of Goods

b. Procurement of Construction Work

c. Procurement of Service

             i. Consultancy Service

             ii. Other Service

 

In accordance with the PPA, public procurement can be conducted using two methods:

(a) Direct Procurement and

(b) Indirect Procurement.

 

a) Direct Procurement

Direct procurement, as stated in Section 41 of the PPA, involves acquiring goods, consultancy services, or construction work under specific conditions. These conditions include low-value procurements, situations where only one supplier meets technical requirements, exclusive rights scenarios, procurement of proprietary goods or services from existing suppliers within limits, urgent needs for unforeseen construction works or services difficult to separate, and the immediate or indispensable requirement of a consultant with unique qualifications.

 

b) Indirect Procurement

Indirect procurement involves acquiring goods and services necessary for a business's overall operation, but not directly linked to the core production process. It includes items like office supplies, IT services, maintenance, and other support functions vital for day-to-day business operations.

 

The Figure depicts the stages of Public Procurement in cyclic manner:

 

 

Step required for procurement of goods is mentioned in below mentioned table: 

Step	Procurement Cycle	Details
Step-1	Procurement Planning	a. Prepare preliminary equipment, specifications and cost estimates. b. Prepare Final Equipment list, Cost Estimates, and Broad Technical Specifications c. Prepare Bidding Documents
Step-2	Determination of Bidders Qualification	Determine qualifications based on the scale and nature of the work
Step-3	Invitation for Prequalification or Bidding	Advertise
Step-4	Issuing of Bidding Documents stage	Issue bidding documents
Step-5	Pre-bid Conference	Conduct conference, if necessary
Step-6	Bid Opening	Receive and open bids and select the lowest evaluated bid
Step-7	Bid Evaluation and Selection	Evaluate bids and select the lowest substantially responsive bid
Step-8	Contract Award	Award contract
Step-9	Contract Implementation and Closing	a. Delivery at port or at site specified in Bidding Document b. Install and commission c. Training at site in O & M d. Conduct Project evaluation of goods

 

A government entity may obtain consulting services under the following circumstances:

a.  When the available workforce within the specific government entity cannot undertake a particular task, or

b. When there is a need to engage a consultant as part of an agreement with a donor party for foreign aid-funded projects.

 

The stepwise procedure of procurement of Consultancy Services as shown below:

Procurement Cycle Step	Consultancy Service
Publishing the notice	When a public entity needs to procure consultancy services exceeding the prescribed amount, it must openly invite expressions of interest by publishing a notice in a national newspaper. This notice will provide at least a fifteen-day timeframe for interested individuals or entities to respond, adhering to prescribed guidelines.
Circumstances Requiring International Expression of Interest for Consultancy Services:	Exceeding Prescribed Cost: When the cost of a consultancy service exceeds a predetermined threshold.   Limited Availability: If the required consultancy service is not competitively priced from multiple consultants within Nepal.   No Response to National Proposal: When no proposals are received in response to a national procurement invitation for consultancy services, necessitating the engagement of a foreign consultant.   Foreign Assistance Agreement: When the service needs to be obtained from a foreign consultant as per agreements with foreign assistance donors.   Publication Language: Notices soliciting international expressions of interest must be published in the English language.
Shortlisting the proponents	The public entity will assess qualifications, experience, and capacity of interested proponents, then shortlist three to six potential consultants. (Note: If the consultancy service cost falls below the specified amount, the public entity can create a list of potential providers who meet the required procedures and then request proposals from these listed individuals, firms, organizations, or companies in accordance with Section 31 of PPA.)
Invitation to potential shortlisted proponents	The public entity shall invite proposals from the potential proponents on the shortlist. This invitation shall be provided a minimum period of thirty days for proponents to respond, and the related proposal documents, as specified, must be sent to these proponents.
Methods of selection of proposal	(a) Quality and cost method, (b) Quality method, (c) Fixed budget method, or (d) Least cost method. If the consultancy service to be procured is exceptionally complex or is expected to have a significant impact on the national economy or future projects, the selection of proposals may be exclusively based on the quality method, as defined by the regulations.
Opening of Proposals	Once the submission deadline for proposals has passed, the public entity will proceed to open the outer envelopes containing the proposals received from proponents, and then the sealed envelopes containing the technical and financial proposals will be separated.
Opening of Technical and Financial Proposal	Technical proposals are opened first, while financial proposal envelopes remain unopened and secure. Financial proposals are only opened after evaluating the technical proposals per Section 33 of PPA.
Evaluation of Technical and Financial Proposal	Technical proposals will be assessed based on the criteria specified in the proposal documents. Only proponents who pass the technical evaluation will have their financial proposals opened, following the procedures outlined in Section 35 of the PPA.
Method of Evaluation of proposals:	Quality and Cost Method: Evaluate both technical and financial proposals together. Select the proposal with the highest combined marks. ii) Quality Method: Only consider the technical proposal. Select the proposal with the highest technical marks. iii) Fixed Budget Method: Reject proposals with costs exceeding the budget ceiling. Select the proposal with the highest technical marks within the budget. iv) Least Cost Method: Evaluate technical proposals to establish a minimum passing score. Choose the proposal with the lowest cost among those meeting the minimum technical requirements.
Grounds for rejection or termination of procurement procedure	If none of the received proposals significantly align with the terms of reference. If the selected proponent's cost significantly exceeds the cost estimate and available budget. If there is no actual need for the consultancy service. If it is confirmed that proponents have engaged in collusion when submitting their proposals.   However, it's important to note that proposals from proponents who have not engaged in collusion may still be considered.
Negotiation with Selected Proponents	Negotiation with the chosen proponent regarding terms, scope, progress, and facilities, except for professional expert remuneration unless it involves reimbursable expenses.   If negotiations don't lead to an agreement, the public entity shall sequentially negotiate with the next-highest scoring proponent (for clauses a, b, and c of Section 35 of PPA) or the next-lowest cost proponent (for clause d).
Contract to be Concluded	The proponent successfully negotiating in Section 37 of PPA gets their proposal accepted. Within seven days, the public entity notifies the chosen proponent and other shortlisted ones. If no objections are raised within seven days according to Section 47 of PPA, the chosen proponent's proposal is accepted, and they are given 15 days to enter the contract. If the chosen proponent doesn't appear, negotiations happen with the next-highest scorer (for clauses a, b, and c of Section 35) or the lowest cost proponent (for clause d) for the contract under Section 52 of PPA.

 

 

Section 41 of PPA contained provisions allowing for direct procurement without adhering to the public procurement process based on several circumstances, which includes:

 

1. Low-value procurement valuing up to the prescribed amount,

 

2. If only one supplier or construction entrepreneur or consultant or service provider has the technical efficiency or capacity to fulfill the procurement requirement,

 

3. If only one supplier has the exclusive right to supply the goods to be procured and no other appropriate alternative is available,

 

4. If additional goods or services of proprietary nature within the prescribed limit is to be procured from the existing supplier or consultant or service provider after it has been proved that if the existing supplier or consultant or service provider is changed to replace or extend existing goods or services or the spare parts of the installed machine the goods or services existing in the Entity cannot be replaced or changed,

 

(i) If one public entity is required to make procurement from another public entity, or

(ii) If it is required to procure any goods or service from any international inter-governmental organization at the rate specified by that organization, or

(iii) If it is requirement to procure in a special circumstance,

 

5. If the most necessary construction works, goods or consultancy services or other services within the limit as prescribed but not included in the initial contract due to failure to foresee and difficult to be completed by separating from the initial contract due to technical or financial reasons, is to be procured and 

 

6. If the service of a particular consultant with his unique qualifications is immediately needed for the concerned work or where the service of same consultant is indispensable.

 

 

As per the Section 54 of PPA, following issuing authorities will have the right to approve the variation order on the basis of the percentage of the variation claimed:

SN	Variation Order (%)	Order Issuing Authority
1.	Up to 5%	Gazetted 2nd Class Officer or an official of similar rank within the relevant public entity shall be responsible for issuing the variation order. Nevertheless, in cases where the project cost has received approval from a higher authority, the issuing authority for the variation order should also be at an equal or higher rank, not a lower one.
2.	Up to 10%	Gazetted 1st Class Officer or an equivalent position official in the public entity shall be the one responsible for issuing the variation order. However, in instances where the project cost has received approval from a higher authority, the individual authorized to issue the variation order should also hold a position of equal or higher authority, not lower.
3.	Up to 15%	Departmental Head
4.	From 15 to 25%	Secretary of Ministry or equivalent head of the public entity
5.	Above 25% (for the Public Entities prescribed in Section 2(b) (1) of PPA).	Council of Ministers, Government of Nepal
6.	Above 15% (for the Public Entities prescribed in Section 2(b) (2) of PPA).	Supreme Executive Authority. For example, Governor of Nepal Rastra Bank, Managing Director of Nepal Oil Corporation etc.

 

According to the PPA, the process of inviting bids can take two forms:

(a) inviting open bids with a prior determination of prequalification, and

(b) inviting open bids without a prequalification determination.

 

These open bids may be solicited through either a single-stage or two-stage approach. The decision to opt for two-stage bidding typically occurs under the following circumstances:

 

1.  When it is not feasible to comprehensively define the technical aspects of the goods, construction works, or services to be procured, or the terms and conditions of the procurement contract at the time of issuing the bid invitation.

 

2. Due to the intricate nature of the goods, construction works, or services to be procured, if it becomes necessary for the Public Entity to engage in discussions with prospective bidders regarding how to address technical challenges or contractual terms and conditions, as well as the advantages associated with them.

 

In accordance with the PPA, a Public Entity (PE) is required to choose a suitable procurement method based on specific conditions and estimated costs. The prescribed methods for procuring goods, construction works, and other services includes:

S.N	Methods
1.	International Level Open Bidding
2.	National Level Open Bidding (Applicable when the cost exceeds Rs. 2 million for construction works and Rs. 1 million for goods and other services)
3.	Sealed Quotation (Applicable for costs up to Rs. 2 million for construction works and up to Rs. 1 million for goods and other services)
4.	Direct Procurement (Applicable for costs up to Rs. 500,000 for construction works and up to Rs. 300,000 for goods and consulting services)
5.	Utilizing Users Committees or Beneficiary Groups (Applicable for costs up to Rs. 6 million)
6.	Force Account
7.	Lump Sum Piece Rate Method
8.	Method of Procurement from the Producer or Authorized Seller at the Specified Rate (Catalogue Shopping)
9.	Method of Procurement Where Limited Bidders Participate (Limited Tendering)
10.	Method of Procurement Whereby the New One Is Procured by Returning the Old One (Buy-Back Method)

 

For the procurement of consultancy services, the options are:

(i) Competitive Proposal

(ii) Direct Negotiation

 

As per Rules 82 of PPR, Procurement through direct negotiation is outlined as follows:

 

(i) If there is a need to acquire a service exclusively for matters such as training, workshops, and seminars, deemed essential for the public entity, such service may be procured through direct negotiation by the chief of the public entity. This is permissible if the cost does not exceed five hundred thousand rupees. For services exceeding this amount but not surpassing two million rupees, approval from an authority one level higher is required, provided it aligns with the provisions of Section 37 of the PPA.

 

(ii) In cases requiring the procurement of a consultancy service with a cost not exceeding two million rupees for the activities delineated in subrule (1), the process involves obtaining at least three proposals. Subsequently, direct negotiations are conducted with the proponent whose proposal is deemed the most beneficial and offers the lowest price. This ensures a comprehensive assessment of factors such as quality and pricing, with approval required from an authority one level higher.

 

Please note that the selection of the appropriate method should align with the specific circumstances and financial considerations involved in the procurement process.

 

Upon the signing of the public procurement contract, it is imperative that the contractor promptly submits a bank guarantee to the public entity before initiating the project.

After signing the procurement contract, the public entity can give an advance payment (up to 20% of the contract amount) by getting a bank guarantee from the supplier, builder, or service provider.

 

If any party who had applied for procurement bidding is not satisfied with the decision of related to procurement, then public entity can submit an application which involves following state.

 

Stage 1: Application to the Chief of Public Entity (Section 47, PPA)

(i) Application for Review:

• · A bidder or proponent may apply to the chief of the concerned public entity for a review against any error or decision.
• · The application must set out the reasons for the damage the bidder will suffer or is likely to suffer due to the error or failure to perform the required duty by the public entity.

 

(ii) Limitation:

· The application for review is limited to actions before the execution of the procurement contract.

 

(iii) Timeframe for Application:

· The application must be made within the specified period or, if not specified, within seven days from the date the bidder knows of the public entity's error or failure.

 

(iv) Application Content:

· The applicant must clearly state the commission or omission of an act by the public entity that led to the error or failure and specify the provision of the Act, Regulation, or guidelines contravened by the decision.

 

(v) Time Limit for Application:

· No review application received after the specified period (or seven days) will be entertained.

 

(vi) Suspension and Decision:

· If an error is found, the chief of the public entity shall suspend the procurement proceeding and make a written decision within five days of receiving the application.

· The decision will also outline how the procurement proceeding shall proceed.

 

Stage 2: Review Committee (Section 48, PPA)

(i) Constitution of Review Committee:

· The Government of Nepal shall constitute a public procurement review committee with specific members, including a chairperson.

 

(ii) Appointment and Tenure:

· Members with relevant qualifications will be appointed for a three-year term, extendable.

· The Government specifies terms, conditions, remuneration, and facilities.

 

(iii) Removal of Members:

· Grounds for removal include misconduct, failure to perform duties, or criminal conviction involving moral turpitude.

 

Stage 3: Application Before the Review Committee (Section 49, PPA)

(i) Conditions for Application:

· A bidder may apply if the chief of the public entity does not make a decision or if dissatisfied with the decision.

· Applicable to procurement contracts above the prescribed threshold and in the matter of contracts made under Section 52.

 

Stage 4: Method of Review (Section 50, PPA)

(i) Application Timeline:

· Applications for review must be made within seven days (for Section 49(a) of PPA) or within thirty days from the contract conclusion (for Section 49(b) of PPA).

 

(ii) Notification and Information:

· The review committee notifies the concerned public entity and seeks information within three days of receiving the application.

 

(iii) Decision-Making:

· The review committee makes a decision within thirty days, considering information, comments, evidence, and documents.

 

(iv) Possible Decisions:

· The committee may dismiss the application, issue orders to the public entity, recommend payment to the applicant, or other appropriate decisions.

 

(v) Security Requirement:

· The applicant must furnish security as prescribed.

 

(vi) Forfeiture of Security:

· If an application is dismissed, the amount of security shall be forfeited.

 

Stage 5: Procurement Proceeding Withheld (Section 51, PPA)

(i) Withholding Procurement Proceeding:

· The public entity shall withhold the procurement proceeding upon receiving notice of a review application until the review committee makes a decision.

 

(ii) Exceptional Circumstances:

· Procurement proceeding need not be withheld in case of urgency, failure of the review committee to make a timely decision, or if the contract has already been entered into.

Information to Review Committee:

If the proceeding is not withheld, the public entity informs the review committee.

 

As per the PPA, the public entity possesses the authority to terminate the procurement contract under several circumstances. These include:

 

(a) Termination by the public entity if the supplier, consultant, service provider, or construction entrepreneur fails to meet contract terms, violates Section 62 of PPA conduct guidelines, or misuses advances.

(b) Termination by the public entity for convenience and public interest.

(c) Termination by the supplier, consultant, service provider, or construction entrepreneur.

(d) Termination due to force majeure.

 

A) Condition of blacklisting

As per Section 63 of PPA, the Public Procurement Monitoring Office may blacklist a party for one to three years if they:

 

i) Commit an act contrary to Section 62.

ii) Fail to enter into a procurement contract after being selected.

iii) Make substantial errors in contract implementation or fail to fulfill obligations.

iv) Are convicted of a disqualifying criminal offense.

v) Falsify qualifications or provide misrepresentations in the procurement contract.

vi) Engage in any other circumstances as prescribed.

 

b) Consequences of Blacklisting:

i) Blacklisted entities are ineligible to participate in any public entity's procurement proceeding during the specified period.

ii) Entities blacklisted for failure to repay a loan from a bank or financial institution are also ineligible for public procurement during the blacklisting period.

 

C) Procedural Guidelines for Blacklisting in Public Procurement

Rule 141 of PPR has provided the provided procedural guidelines for blacklisting:

 

i) Request for Blacklisting: If blacklisting is required under Section 63 of PPA, the public entity shall submit a written request to the Public Procurement Monitoring Office, providing details, reasons, and relevant documents.

ii) Immediate Prevention: Upon receiving the request, if it is evident that immediate prevention is necessary, the Public Procurement Monitoring Office may restrict the entity from participating in new procurement until the blacklisting process is completed.

iii) Notification of Prevention: If prevention is implemented, the Office shall inform the concerned entity and publish a public notice within seven days of the decision.

iv) Notice and Submission: Upon receiving a blacklisting request, the Office shall send a 30-day notice to the concerned entity, allowing them to submit grounds and clarification to avoid blacklisting.

v) Public Notice for Unreachable Entities: If the entity is not found upon notice delivery, a public notice will be published in a national newspaper, serving as official notification.

vi) Submission of Clarification: The concerned entity must submit clarification and relevant documents to the Office, explaining reasons for not blacklisting.

vii) Request for Joint Hearing: The entity may request a joint hearing with the Public Procurement Monitoring Office during the clarification submission.

viii) Conducting the Hearing: If a hearing is deemed necessary, notices are sent, and both parties must appear within the specified period.

ix) Opportunity for Explanation: Both parties are provided with an opportunity to present written or oral explanations and statements.

x) Decision on Blacklisting: Considering the hearing and submitted documents, the Office decides whether to blacklist the entity.

xi) Notification of Blacklisting Decision: If blacklisting is decided, written notification is given to the concerned public entity and entity, and it is published in a national newspaper.

xii) Removal of Prevention: If blacklisting is not decided, any prevention implemented is automatically removed, and the decision is publicly announced.

xiii) Computation of Blacklisting Time: If blacklisting occurs after prevention, the blacklisting time is calculated from the prevention date.

xiv) Timeline for Blacklisting Proceeding: The Office aims to complete the blacklisting proceeding within six months of receiving the request.

xv) Reporting of Prior Blacklisting: Entities with prior blacklisting decisions must inform the Public Procurement Monitoring Office within 30 days of this Regulation's commencement.

 

If any disputes arise concerning the execution of the procurement agreement between the governmental entity and the construction industry supplier, service provider, or consultant, it will be addressed through mutual consensus. If a peaceful resolution of the dispute cannot be reached, the procurement contract should explicitly specify that the matter will be settled through arbitration in accordance with the prevailing legal framework.

 

PPA has established PPMO to ensure transparent, efficient, and corruption-free governance in the public entity's procurement system, fostering trust and coordination through technology.

 

The Functions, duties, Powers of the PPMO are as follows:

1, Monitor public procurement activities through observation visits or requests for reports and information from public entities.

2. Provide guidance to public entities regarding the content and submission deadlines for reports on procurement activities.

3. Implement programs to assist both public entities and procurement participants.

4. Simplify and facilitate procurement processes.

5. Establish a central data bank to record contract implementation performance.

6. Develop methods for disseminating information related to public procurement.

7. Conduct research on policies, laws, and practices in procurement from other countries to improve the system.

8. Create a plan for managing skilled and proficient employees in public entities involved in procurement.

9. Ensure the professional competence of personnel appointed to procurement units, evaluation committees, and the Monitoring Office.

10. Define the roles and responsibilities of public entity chiefs, procurement unit employees, and evaluation committee members.

11. Monitor the implementation of review committee decisions and report to the Office of the Prime Minister and Council of Ministers.

12. Offer assistance for conducting training programs to enhance the professional skills of employees engaged in public entity procurement activities.

13. Conduct training programs to improve employees' professional expertise.

 

 

Date of Publication: 20 Janurary 2024

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