Post-conflict states and public procurement. Strategic, economic and legal challenges and opportunities. Brussels, 30 September 2015 Introduction

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1 International scientific conference Post-conflict states and public procurement. Strategic, economic and legal challenges and opportunities. Summary of the discussions final Brussels, 30 September 2015 Introduction This paper is a summary of discussions that took place during the international scientific conference held in the premises of the Permanent Representation of the Republic of Poland to the EU in Brussels on 30 September The Conference was organized by the Institute of Legal Studies of the Polish Academy of Sciences and by the Permanent Representation of the Republic of Poland to the EU. It was co-financed by the resources granted by the Polish National Science Center, based on decision DEC-2012/07/N/HS5/ The participants included: EU member states, several international organizations, academia, think tanks and NGOs, representing both practitioners and theoreticians perspectives. The conference was aimed to exchange views on public procurement as a tool of foreign policy for post-conflict states, exploring challenges and opportunities that it offers. The following are some of its key findings: With current approach to and use of public procurement in/ for the benefit of post-conflict states challenges, instead of opportunities arise for recipients and donors engaged in these states. If the aim of international assistance is to build peace and durable self-sustainability of recipient state, than reform of its public finances shall be given a greater attention both as prevention of conflict and as part of reconstruction process in post-conflict states. Aside of being instrument of internal market, public procurement is a useful tool of foreign policy, which may significantly impact the outcome of reconstruction efforts. Public procurement, and not just international assistance should therefore be introduced into the policy discussions on engagement in third states. Support to budgeting and procurement need to be part of the post-conflict peace-building process and of any security reform processes. Public procurement may contribute positively to development if a local context to which it is referred is considered. In post-conflict states there are greater risks and thus there is a need for a greater flexibility and cooperation. When assessing whether aid is effective in post-conflict situation there is need to have different parameters than those for other developing states. There is need of more resources and of more people to achieve the aim of international assistance. Budget support can be an opportunity for preventing conflict. Drafting model regulations for procurement is a part of involvement of international community in building an active procurement system in post-conflict states. Working with post-conflict states to build an effective procurement regulations is a long-term commitment and not a short-term consultancy. Effective harmonization is perhaps an elusive goal, but should not be forgotten. 1

2 The meeting was held under the Chatham House Rule and the views expressed are those of the participants (this term includes also speakers). The following summary is intended to serve to those that took part in it and to provide an overview of discussions to those who did not. The Chatham House Rule: When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed. Conflict and conflict sensitiveness In the first part of the conference, the participants identified some of the main challenges and opportunities of strategic, legal and economic character relative to procurement in post-conflict states. The discussion started with consideration from a political perspective of notion of conflict. It was highlighted that the definition of the notion of a conflict is an ancient concern that nonetheless remains a very actual phenomenon in light of the evolution of its nature. Since no universal definition can be determined as such, it was however pointed out that conflict can be understood as friction or opposition resulting from actual or perceived differences or incompatibilities. The specific attention was given to criteria of typology of a conflict and intensity of crisis. The reasons for the disagreement, a chronology and the level of intensity were indicated as the three major criteria for defining a conflict. It was noted that a post-conflict situation is a factor that influences development path of a state. Choosing definition of the situation on the ground impacts kind and size of assistance provided, as well as influences quantity and type of actors involved. Therefore classifying a state as post-conflict is mainly politically driven exercise that remains a sensitive issue in many ways. It was underlined that stages of conflict prevention and peace-development, when the tensions are manageable play the crucial role for international engagement and shall be further explored in discussion over role of public procurement and impact the conflict may have on it. Further on, it was explained that a conflict sensitive approach to be adopted while providing international assistance consists of understanding the context, its relation with intervention and pursuing activities aligned to this understanding. The participants agreed that the assistance can do harm especially when the resources are provided to fight over, to fuel the tension and to legitimize illegitimate actors. This is why it is crucial to act quickly both through early warning to early response and to do it rightly. This includes identifying and prioritizing risks of conflict and peace opportunities as well as early responses based on comprehensive analysis that are followed by their monitoring. To that end, the participants were informed of establishment by the EU of the Global Conflict Risk Index (GCRI), which collects 22 variables across five dimensions that are derived from data processing and which may be used as information resource while planning international engagement. It has been gradually applied within the programming of the EU. As it was underlined, the conflict analysis includes in depth discussion on conflict dynamics, possible responses, scenarios, causes, drivers of peace, stakeholders as well as priorities and options to achieve them. 2

3 Public procurement as a tool for distributing international assistance It was suggested that public procurement and reconstruction plays crucial role for statedevelopment when high intensity violence ends and crisis-management transforms through peace enforcement into peace-building stage. However, equally important is effective prevention of the conflict and adequate design of assistance to be provided to those that are in need of it. As it was underlined, more effective aid is more prevention is put in place against occurrence of tension and efficient peacebuilding can happen. As pointed out by the speakers, the link between international assistance and the public procurement is clear. The latter remains a tool for distribution of international resources. However, the question yet to be answered is how public procurement can make the international aid more effective. A considerable part of developing countries procurement is financed by development aid. It was pointed out, that Eurodad estimates that $69 billion annually - more than 50% of Official Development Assistance - is channeled through donor and recipient procurement systems in order to procure goods and services for development projects. Therefore raising effectiveness of procurement can result in increasing effectiveness of aid, while ineffective procurement can do harm. Connecting procurement and development assistance raises a significant number of challenges. As noted, instead of addressing root causes of conflict, it happens that the donors fuel it. Among challenges there is a lack of coordination that is closely linked to application of multiple procurement rules. It is so, because since the post-conflict states are of greater risks, the donor wish to keep more control the way their money are spent and apply their domestic regulations. As it was explained, it happens also that a donor uses different set of procurement rules to deliver assistance or that different donors use diverse rules, despite acting in the same country over implementing the same single development project. Use of multiple procurement rules constitutes a challenge also to the potential bidders, who are required to fill in various bidding documents and comply to different rules. This has a direct impact on competitiveness of domestic suppliers and contractors who are not necessarily proficient in the procedures as the counterparts coming from donor states. Moreover there should be an increasing need of balancing what is good for the recipients and what is needed to be visible and responsive to domestic expectations. Another challenge pointed out is that donors impose aid conditionality of political/legislative, economic or environmental nature which is closely linked to practice of tied aid. This results in hampering the efficiency of the procurement process and in fact goes against principles of good procurement. As it was underlined some international steps have been taken to improve donors aid practices such as Paris declaration focusing on aid procurement, harmonization and coordination of donor s polices and DAC recommendation on untying aid as well as promotion of using recipient domestic system to distribute aid. However in practice, they have not been very effective. The specific problem is faced by post-conflict states which often either do not have domestic procurement system or it is very fragmented. In both cases it makes it inefficient and out of control. It was agreed that in such situation aid should be used to build the system, instead of creating parallel structures. Such approach would require long-term institutional reforms, knowing local community and continuous alert to and fight against raising corruptive behaviors. 3

4 During the discussion an issue of budget support was also tackled. It provides assistance to government to formulate or implement certain policies to address challenging issues. It was suggested that budget support can be an opportunity for preventing conflict and improve development of states. Well-designed operational budget can be very effective mean to empower the state itself to addresses deficiencies and prevent conflict by delivering on all elements of social contract. If social contract breaks down this is when the conflict starts. As it was explained, the EU developed a risk management framework for budget support: It looks specifically at the risk of violence in considering when and where to provide budget support. In its approach the EU tries to consider not just fiduciary risks (how member states can be challenges for what they did and their reputation can be harmed) but also risks of inaction. However, as some participants pointed, putting resources into the hands of recipient governments often constitutes a risk. This is why every case needs individual approach. As it was underlined, what requires further work is assessment of benefits coming from budget support. Although there is a general consent on assisting, what seems not to be sufficiently elaborated are tools to measure effectiveness of aid. As some participant indicated there is a huge impact of development public procurement on society in post-conflict states. It remains a very political issue. After conflict there is an issue of possibility of creating aid dependency in the state rebuilt and what counts is identification of means to avoiding it. It was indicated that in post-conflict states it is difficult to see the right moment to diminish the assistance so that the state can be self-sustainable. Some pointed, that it is almost impossible to take away aid once delivery is ongoing, since it threatens position of those that have benefited from it for years and it may humper fragile stability of the state. Moreover, the donors in order to be visible often continue to invest their efforts in the same areas without trying to understand real needs of the recipients. Additional issue raised during the discussion was related to supply chain and ways of making sure that the finances provided through procurement do not drive conflict. Some of the practical suggestions included: 1) tender documents including conflict sensitivity as one of the award criteria: bidders providing evidence for proven knowledge in applying conflict sensitivity (past performance: how did bidder s involvement prevented or at least did not fuel conflict); 2) some resources should be spent on understanding the conflict and the risks that they may encounter; 3) voluntary rules of conduct worth establishing and applying, as they require registration of bidders, what may lower down possibility of destabilizing the situation. However, the practice shows that it is challenging to check whether in reality bidders comply with the rules of conduct. Moreover, in post-conflict states company registration process is a challenge. The donors often do not take into account that obtaining licenses in such state may be costly and may provoke market of issuing illegal documents. Public procurement as a form of international assistance Another link between public procurement and international assistance in considering public procurement regulations as a form of international assistance provided to those reforming their domestic systems. In this context the ways to regulate public procurement were explained, including hard law instruments such as WTO GPA (designed to open up markets) or EU Directives (with purpose to open up the markets for the EU member states). The specific focus was given on UNCITRAL Model law as an example of soft law, which has been commonly used as tool for conducting legal reforms in post-conflict states with aim to allow them to design procurement 4

5 system based around good legal principles. It was explained that the text of UNCITRAL Model law is internationally negotiated through exchanging experiences in public procurement regulation. It is a model for national procurement legislation that can work anywhere, if adopted to local context. So from that perspective, UNCITRAL is an aid provider as the work performed by it can support effective development through building good national system of public procurement. As it was underlined UNCITRAL may also be used to support work of the World Bank and others involved in assisting in reforming of public procurement systems. The Model law focuses on achieving economy and efficiency, participation and competition, fair, equal and equitable treatment, integrity, public confidence and transparency through given procedures that are made public. It aims at harmonization of legal standards across different markets and it is designed to provide legal certainty for potential suppliers. Some however noted, that post-conflict states remain a significant challenge for effective implementation of proposed model legal framework of public procurement since it requires effective institutions which do not exist in post-conflict states. As result, the participants underlined that there is need for clear parameters responsive to post-conflict states that also consider local context and traditions. There should not be copy-paste of the law into another system especially in post-conflict environment. The participants indicated that although often it is said that the donors should show more political will to coordinate their activities, but in fact those are national governments that run the donors: The UN does what the member states say and the World Bank does what the directors on Board decide. So in fact it is a question of national political will while policy motivations are complex and purely political. The donors provide the assistance which is authorized by decision-makers and which follows principles that are acceptable. As an example, it was indicated that the EU does a lot of work on policy support for other states in form of technical assistance (i.e. in Zambia). Here the European procurement directives serve often as the terms of reference. As pointed, those legal instruments are designed for particular level of governance in mind, which is not necessarily present in a given state. It was hence underlined during discussion that there is need to use what suits the local context and not what politically is suitable or what reflects donors systems in order to achieve sustainability of effects of the support. In other words, there is need to put oneself into the shoes of the recipient state and draft legislation that will work for it. During the discussion, it was underlined there are too many differences between international regulation available for procurement in general and development aid procurement in particular. There is a significant harmonization gap in development aid procurement regulation. What is needed is an adoption of a holistic approach to aid effectiveness and procurement by considering use of country systems. Policy choices are often dictated by the source of financing. In post-conflict situation they are always externally financed. Will the donor give UNCTRAL freedom to do best for the post-conflict states and not what corresponds to donors interests? Is it better to have procedures that are better in theory but do not work together with donors funds? What happens with the local capacity building when donors procurement rules are used instead? those are some of the questions raised during the discussion. 5

6 Arms procurement in post-conflict situations While discussing challenges and opportunities, a specific attention was brought to arms procurement in post-conflict states. As the discussion has shown, the issue is of crucial importance for post-conflict states and require further attention from law and policy-making perspectives. The main challenges in this area are that international arms trade remains hard-wired for corruption in developing and developed states (high profile corruption cases occurring all over the world). This results in loss of efficiency. This type of procurement is characterized by high degree of secrecy, impunity and national security exceptionalism which leads to lack of transparency (lack of public knowledge on how much and what money are spent on). As explained, in many countries there is a dominant assumption that anything that relates to security is off-limits scrutiny or society has limited access to the relevant information. Often it relates to large, complex and high-value deals and it has weak links between defense policy, budgeting and procurement (purchasing security assessment identification of real needs nexus). All this is a great opportunity for corruption and waste of financial resources. It was noted that the situation becomes even more complex in post-conflict states that have weak or non-existent state institutions and lack effective oversight. In such states arms procurement may have significant impact on security situation and lead to diversion (as example: the US used 130 brokers for procuring arms for Iraqi forces some of whom being on the US watch list for diversion of arms) or leakage of arms (i.e. in Somalia, DRC). It may lead to increasing risk of re-igniting conflict (i.e. South Sudan). In post-conflict states, if arms procurement is not right than results are not merely wasteful and corrupt - they can be deadly. Moreover, security related procurement is poorly regulated or even unregulated and thus subject to inappropriate application of regulations (resulting either in inadequate use or overuse of secrecy argument as excuse to divert from basic principles of public procurement). Further into discussion, it was pointed that while drafting latest version of the UNCITRAL model law it was decided that there was no reason to subject such procurement to any type of secrecy unless purchasing compromise national interests (in principle, in such case there is need to exempt only specific stages of procurement). During the discussion it was underlined that there is a number of issues that can be still addressed in the context of arms procurement in post-conflict states such as: role of arm forces in post-conflict situation and how do they link to peace-building process and DDR, role of suppliers, civil society engagement challenging use of secrecy and impunity (best practices of World Bank and OECD suggest that military sector should be treated as any other sectors knowing that there are exceptions), assuring adequate management of stocks, relevant identification of needs of security forces. All those issues need to be integrated in the SSR and DDR processes of post-conflict state, while building its transparent procedures and institutions, as well as civilian capacity within ministry of defense, parliament, oversight and monitoring authorities and anti-corruption authorities (responsible for examining and scrutinizing the military sector). It was noted however that arms exporters are part of problem of corruption of international arms trade: so it is also up to the states that provide the arms to fight this phenomenon in post-conflict states. 6

7 Exemplification through case studies To exemplify most of the above statements the second part of the conference focused on analysis of three case studies: two of geographical character (South Sudan and Afghanistan) and one of horizontal nature (UN procurement in peacekeeping). In case of horizontal case study, a significance of UN procurement of goods and services in peacekeeping being one of the major donor in post-conflict states - was explained: UN Secretariat in New York provides procurement for 16 peacekeeping missions around the world (majority of 3,2 billion USD is for peacekeeping procurement). The other agencies and programs conduct their own procurement according to their own regulations. Cost of air transportation services constitutes the biggest share in the UN procurement (800 mln USD in 2014), followed by chemical and petroleum products (oil, gas). The UN is exempted from VAT (in general quotation of potential bidder is excluded of the taxes that would have to be paid domestically and for the import taxes in i.e. African states). The geographical case studies constituted an exemplification of challenges and opportunities that procurement in post-conflict states present. Following the overview of political, social and economic situation of South Sudan and Afghanistan, the speakers presented reforms of public procurement undertaken in both states pointing out to specific stages and actors involved. The list of challenges was indicated raising basis for the discussion: The issue of corruption and customs in the two case studies was indicated and possibility of helping the states to build their capacity to prevent it. It was pointed that customs affect procurement significantly. Within South Sudan there are ten states. Even after clearing at the external border, some internal taxation still may occur. Thus harmonization and nationalization of taxation system in post-conflict state, as well as transparency of overall potential costs of taxation are crucial, The assistance provided should not harm as it did for example in Afghanistan creating culture of dependency and insufficient self-sustainability of state structures (especially of National Security Forces), In both case studies there was no sufficient domestic expertise in the recipient country to conduct effective procurement reform. The relevant steps were undertaken to some extent (more in South Sudan then in Afghanistan) to overcome this obstacle. Quite often there is no internal coherence among the legal acts, as the different consultants employed by the donors do not look at the issue horizontally. As practice show there is no coordination of international efforts. If some other actors are already active in the domain, it is important to coordinate the efforts, so no repetition of actions takes places and there is internal coherence of goods/ works/ services provided. Depending on definition of the context and qualifying it as conflict, it was shown, that Afghanistan may at the same time be defined as conflict affected, conflict and postconflict state. Making policies often occurs from the Western perspective, however what has to be kept in mind is that needs of society are different before and after the conflict, as the vision of its own life differs. This impacts the way the context can be defined. To add to this, the history and the culture of the state influences the way the context is perceived. 7

8 This is why it is crucial to attempt to grasp all elements of analysis before trying to provide the solution to post-conflict state. Equally important is to define what exactly donors want to do through the assistance at the earliest possible stage. During the discussion some participants frankly admitted that international assistance in its proposed forms and quantities - does not work. As they indicated, the main problem lies in distortion between donors point of view and local point of view in the post-conflict phase. The needs identification and evaluation which translates into project are in general made by persons without necessary competences what may lead to incorrect outcomes. Often in practice, there is no sufficient time given for project planning, which is individually attributed to a given post-conflict state. Moreover, the rules applied are extremely rigid for example when it comes to the bid securities (the contractors from developing states do not have sufficient resources to compete for tender) or technical specification (especially in construction contracts). Challenges and opportunities related to conducting procurement in post-conflict states Most of the participants indicated that public procurement in post-conflict states remains a challenge, depending on perspective adopted (of potential bidder vs. of procuring entity or of donor vs. of post-conflict state). The participants pointed to the following challenges and opportunities linked to conducting procurement in post-conflict states: Some challenges related to conducting procurement in post-conflict states include: While getting involved in procurement activity in post-conflict states there is need to ask questions: 1/ whether it means engaging in conflict dynamics; 2/ On the nature of engagement; 3/ On the possible impact; Possibility of unintended consequences; Risk of doing harm ; Risk of creating donor dependency; Risk of breaking down trust in government as donors start to become the only providers of security; Finding right balance between interests of donors and interest of recipient states; Adopting perspective of recipient state; Understanding local context & lack of knowledge of local system; Lack of engagement within the formal social system; The interests of recipient and of donors do not coincide; Lack of uniform set of donors procurement rules; Lack of political will to reform; Changing priorities of donors; Donors classify a state as post-conflict when it is still in conflict and the recipient has not yet capacity to build its own system; Need for relevant projects compensated by donors need for flagship projects; No sufficient education on reforms proposed; People responsible to build capacity often do not have capacity themselves; Overuse of single source procurement; Regulations in area of public procurement in post-conflict states too complicated; Lack of expertise and knowledge on procurement among locals; Lengthy and expensive process (registration /tendering); Domestic political situation; Domestic security situation; 8

9 Language barriers; Different culture; Corruption; Lack of internal coherence of legislation; Domestic taxation system; The rule in post-conflict situation is that there is no rule ; No harmonization of customs; Public procurement is not a priority; National preference clauses in recipient legislation; Weak and unable institutions; Limited access to information; No centralized information about business opportunities; Unclear definition of sensitive procurement; No official translation of legal documents as basis for reform. As it was underlined during the discussion any challenge mentioned above constitutes an opportunity for engagement. It requires from the donors to identify their tools and activities to mitigate it. State-building in post-conflict states is an opportunity for global market and donors suppliers. In such states starting activities from scratch gives opportunity to design systems that reflect both best practice and the particular needs of the country. The opportunities that public procurement in post-conflict states offers, as pointed out by the speakers, include: Public procurement is a good area to start building appropriate governance mechanisms, since it involves a key area of governance (discretionary decision-taking, large sums of money at stake); Public procurement is a good opportunity to put in place the basis for a secure economic foundation to support economic and social growth and development as well as to construct the infrastructure that delivers essential services to citizens (it offers the way of building the infrastructure the post-conflict state needs); The assistance may be used to transfer technical knowledge and skills - as critical projects will require donor assistance; Public procurement offers significant commercial opportunities to many businesses from overseas over the longer-term, whose expertise can be built in to initial delivery contracts (i.e. harnessed for effective capacity-building); Moreover, in the post-conflict states the donors may: Educate the society about changes within the public procurement reform (if there is a long history of procurement in the country make use of it); Promote compliance with law in public institutions and within society; Define context before, during and after using the same indicators every time; Help to establish or finance procurement (and procurement related) degrees at universities and colleges; Train the trainers in procurement courses that do not repeat themselves in substance but allow for gradual expertise; Establish specific rules for conflict areas. Assist in making them legally binding (procedures and institutions). They have to be simple and quickly implemented; In case of sensitive procurement help to clarify it with those that are involved in it (both among procuring entities and bidders); Make the laws coherent (horizontal, comprehensive approach). This may require additional fact finding mission to identify all the laws relevant; 9

10 Be flexible: within framework of international standards trying to adjust the proposed law to local context. This may require additional fact finding mission; Issue procurement manuals available to all; Assist in assuring uniform (and official) translation of (legal) documents; Help to draft the code of ethics in public procurement with list of enforceable punishments in case of non-compliance. In addition: a handbook on corruption where definition, laws and punishments are explained should be distributed; Assure coordination (supranational organizations as guardians) top-down and bottom-up; Introduce on-budget support with monitoring mechanism from day zero. Some additional recommendations & food for thought from the speakers: Defining a situation in which you are about to get involved has always consequences. Relevant and full assessment of the situation makes sense: root your engagement in a solid conflict analysis or political economy analysis that allows you to understand the underlying interests and needs of stakeholders. Identification of instruments and institutions used in reconstruction matters. Tools and forms of assistance chosen impact the result. Institutions and self-sustainability is crucial and shall be the objective from the moment decision to get engaged is taken. Local context matters and should be considered while assisting in drafting legislation for post-conflict states. Effective coordination matters. Check what form of assistance has already been provided to those you are about assist. Parallel structures can harm as they result in brain drain and alter market. Better installing within the existing administration. Include in tender specification the criteria that bidders need to demonstrate knowledge and good practice in adhering to conflict sensitivity principles. Monitoring matters: ensure you monitor broader impact of your engagement (and in case of support to public procurement reform do not only monitor output or capacity development but also broader impact and perception). Combine technical engagement on public procurement with political awareness (e.g. to respond to incidents adequately). Pay specific attention to security related procurement in the post-conflict states especially when it comes to drafting laws and their implementation. One size fits all solutions rarely work in all contexts. Simplification of legal norms for the post-conflict states is important. Stay long enough to conduct debate so that the post-conflict state is capable of identifying its needs. Encourage recipients to build their own system, using internationally-developed tools and support them. 10

11 Speakers at the conference (in alphabetic order) were the following: Kremers, Joscha: UN Secretariat Procurement Division, New York; La Chimia, Annamaria dr: School of Law, University of Nottingham, Nottingham; Nicholas, Caroline: UNCITRAL Secretariat International Trade Law Division, Vienna; Olowo, Richard: World Bank, Fragility, Conflict & Violence Group, Nairobi Hub; Perlo-Freeman, Sam, dr: Stockholm International Peace Research Institute (SIPRI), Stockholm; Speyser, Frederic, Maj.: Office of the Special Representative of INTERPOL to the European Union, Brussels; Suwara, Ewa dr: Polish Academy of Sciences, Institute of Legal Studies, Warsaw; Van Houwelingen, Heino: European External Action Service, Conflict prevention, peace building & mediation division, Brussels. For additional information on the conference contact: Ewa Suwara, Deputy Representative of Republic of Poland to the Political Security Committee / Nicolaidis; Permanent Representation of the Republic of Poland to the EU, Brussels ewa.suwara@msz.gov.pl For citation: International scientific conference. Post-conflict states and public procurement. Strategic, economic and legal challenges and opportunities. Summary of the discussions. Permanent Representation of the Republic of Poland to the European Union in Brussels, 30 September