william kosar what every budget officer should know_rwanda

Contract Information that every Budget Officer needs to know

Prof. William E. KosarSenior Legal Advisor / UNDP

0782 22 00 79

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Today we will discuss

• Types of contracts

• Needs

• Contract checklists

• Dangers with MOUs

• Performance Guarantees

• Bid Rigging

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Overview of Contract Law

• The general requirements for the conclusion of a contract according to the Contract Law of Rwanda are the following:

• Mutual assent

• Capacity of contracting

• Benefit of the contract

• Licit cause

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When must Contracts be in Writing?

• Contracts generally do not have to be in writing

• Art 42 of the Contract Law provides that the following types contracts must be in writing:

• a contract whose performance duration is more than 1 year

• a contract impacting the right on immovables

• a surety contract

• a contract for the sale of goods for the price of RWF 50,000 or more

• a contract for the sale of securities

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TYPES OF CONTRACTS

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Public Contracts

• All public contracts relate to Goods, Works, or Services

• Goods include automobiles or equipment

• Works include new buildings or latrines for a school

• Services include consultants & cleaning services for a ministry building

• Exceptions to using public contracts occur when the government decides that for security reasons, it must use another method to enter into a contract

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Fundamental Principles of Public Contracts

• Transparency

• Competition

• Economy

• Efficiency

• Fairness

• Accountability

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General Conditions of Contracts• GCCs are intended to simplify your work

• Repetitive contracts that are NON-changeable & make contract review easier

• The only things that change are the Special Conditions—these are the EXPRESS TERMS of the contract.

• There is to be NO VARIATION of the General Conditions.

• GCC Works deals with construction of stores, offices, residences, schools, hospitals, etc.

• GCC Goods (or Deliverables) relate to contracts for MOVABLES.

• GCCs - Works & Goods currently being developed by LAS

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Public Private Partnerships (“PPP”)

• PPPs represents a method of procurement that brings together public and private sectors in a long-term partnership for mutual benefit with regards to the provision of public services.

• Private sector supplies infrastructure assets & services that traditionally have been provided by the Government

• PPP contracts stress long-term service delivery rather than asset creation; services can be provided to the government or directly to final consumers.

• Rwanda is currently developing a Public Private Partnership Law.

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Types of Resource Exploration Contracts

• Concession-contractor has exclusive rights to explore, develop, sell & export oil or gas or minerals from a specified area for a fixed period of time. The oldest & most widely used form of Exploration & Production (“E & P”) contract.

• Production Sharing Agreements (“PSA”) the State enters into a PSA with Contractor for specified time

• Contractor finances exploration & development. If successful, the Contractor recovers its costs & earns profit by receiving a share of production

• Royalties & Income Tax are paid as applicable in accordance with the law

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Power Purchase Agreements (“PPAs”)

• PPA is a long-term agreement between an Independent Power Produce (“IPP”) & purchaser, generally the State.

• Negotiating & signing a PPA is a critical step in the development of any energy project because it secures a long-term revenue stream through the sale of energy from the project

• Having a PPA will also be a condition to any equity and debt financing for the IPP

• From the point of view of the utility, or buyer of electricity, reliable power at a reasonable price is one of the most important criteria

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Checklists

• Have a summary of the important contract details at the front of the file

• When reviewing a contract, can check for the essential terms of the contract & use it for a convenient summary for the file & when reporting

• When drafting contract, it provides a checklist of items to include. E.g., it can be given to laymen in your ministry who will sketch out the essential terms of the contract that will form the basis of your instructions to the lawyers

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Checklists

• Intended to be used by both the instructing Ministries as well as by LAS staff & GoR lawyers to ensure that all important items are included

Pitfalls of MOUs

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When to use a MOU• MOUs are used between government

departments & intra-corporately as a party cannot contract with it self

• They are used when the exact name of the contracting parties is unknown or in agreements between Ministries & NGOs when the agreement should technically be with GoR

• Often these parties are not legal persons & cannot enter into binding legal agreements

• MOUs can be binding

© William E. Kosar 2011

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Memorandum of Understanding (“MOU”)

• It is critical for the parties to agree on whether or not they intend the document to impose legally binding obligations

• If the parties wish the MOU or individual clauses in the MOU to be legally binding, they should state this intention clearly & unambiguously in the MOU


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Functions of MOUs

• MOUs can assist GoR ministries & agencies clarify roles & responsibilities and manage expectations associated with projects to be undertaken with other GoR parties or NGOs

• Non-binding MOUs may be terminated without legal consequence in some circumstances.

• This flexibility is considered to be a significant advantage for GoR


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MOUs between Government Parties

• MOUs are helpful when 2 or more government parties wish to collaborate on a particular project or working arrangement

• In many cases, the parties will be unable to, or legally prohibited from, entering into a legally binding contractual arrangement with each other, because 2 different arms of the same legal entity are unable to contract


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MOUs between GoR & Private Parties

• GoR Ministries & institutions may wish to enter into an MOU with a private party in circumstances where a complex development project is being undertaken & the details for the project not yet determined

• MOUs describe the key components of the project, the roles & relationships of the parties in relation to the project, and the conditions precedent for the project


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MOU Template

The parties acknowledge that this MOU is a non-binding agreement, and can be subject to, inter alia, the passage of legislation, regulatory approvals, and unless and until definitive legal agreements have been negotiated, approved by the necessary management levels of each Party and executed and delivered by the authorized representatives of each Party. The parties agree to work cooperatively to implement the terms and intent of this MOU. The terms set forth herein are not exhaustive of the terms in the definitive documents. Each Party agrees that this MOU is not legally enforceable and gives rise to no legal obligations on the part of any Party.


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Memorandum of Understanding (“MOU”)

• If it is the intention of the parties that the MOU be non-binding, the MOU should provide explicitly that the parties do not intend to enter into a legally binding arrangement, but intend to comply with the framework provided by the document


Guaranteeing Performance under a Contract

Standby Letters of Credit

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Guarantee Types

• Performance guarantees

• Advance payment guarantees

• Progress payment guarantees

• Warranty or retention (holdback) guarantees

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Basic Types of Guarantees

Bid Guarantee

• evidence of serious intent to supply the goods or services if selected

• In the event that the selected supplier is unwilling or unable to carry out the contract, the Buyer can collect the amount of the Bid Guarantee

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Law on Public Procurement, Art 1(5)

“Bid Security” means any guarantee by a bank or other relevant institution to allow the prospective bidder to participate in tendering

<Garantie de soumission » signifie toute garantie émise par une banque ou une autre institution habilitée, constituée pour garantir la participation du soumissionnaire à la concurrence

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Advance Payment Guarantee: • covers the amount of the down-payment

• provides GoR with some security

• if the Supplier does not deliver under the terms of the contract, the amount of the down-payment would be retrievable

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Performance Guarantee: • permits GoR to draw on the Guarantee if the Supplier fails to perform according to the terms of the contract

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Law on Public Procurement, Art 1(13)

“Performance security” means any guarantee by a bank or any other relevant institution established to guarantee the procuring entity that in case the contract is not performed, be it technically or at the level of deadlines, the procuring entity would receive the amount provided for such a guarantee

«Garantie de bonne exécution» signifie tout engagement pris par la banque ou émis par toute autre institution habilitée, pour garantir l’entité de passation de marché que si le contrat n’est pas bien exécuté, que ce soit au niveau technique ou au niveau du respect des délais impartis, l’entité de passation de marché recevrait le montant prévu pour cet engagement

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Performance & Bank Guarantees

• Bank Guarantees/Bonds for Performance for both Works and Goods as well as an advance Payment Guarantee

• These are forms of Letters of Credit

• You MUST ensure that each of these forms issued in the ORIGINAL by bank or insurance company licensed to operate in Rwanda and/or another major international bank/insurance company

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Law on Public Procurement

• Article 31—Tender Security• Articles 75-80—Performance Security• Article 87: Amount of advance payment

and its security

The advance payment shall not exceed 20 % of the price of the tender & shall be paid upon submission by the successful bidder to the procuring entity of an advance payment security equivalent to the advance itself.

That security shall be given by a bank or any authorized financial institution.

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Due Diligence on Security• Confirm that it is an actual & ORIGINAL guarantee issued

by bank or insurance company licensed to do business in Rwanda or is a major international bank.

• If doubt financial strength of issuing financial institution, or if it is on a Blacklist that may have been developed by the GoR, insist that the security be CONFIRMED by a major international bank

• Verify the credit & request amendments, if necessary.

• Determine if there are any conditions attached or any additional documents required

• Confirm that the financial instrument is IRREVOCABLE

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Due Diligence on Security

• Contact the issuing bank or insurance company to determine that they really did issue the security

• Note date of expiry. Is it acceptable? Also diarise the date for 1 month prior to the expiry & confirm that an extension/renewal is available if necessary

• Ensure that terms and conditions reflect the contract particularly with regards to the amount. The percentages are noted in the Law on Public Procurement

• Confirm that you actually have the security in hand

BID RIGGING/Truquage d’Offres

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Tendering

• The tendering process is one of the most effective & frequently employed means to obtain the best price for goods & services

• Bid-rigging schemes reduce a firm’s ability to compete domestically & internationally

• Bid-rigging may cause public sector to pay too much for goods & services resulting in reduced public services, programs & higher taxes

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BID RIGGING

• conspiring to fix the bidding process to suit the collective needs of the producer’s suppliers

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Public Procurement Law—Art. 1

• 11° “Fraudulent Practices” refer to any act of lying, providing misinformation, including collusive practices among bidders aiming at influencing the procuring entity to making wrong decisions or to giving room for poor execution of the contract

• Manoeuvres frauduleuses signifient des actes mensongers, des déformations d’informations y compris, des ententes illicites entre soumissionnaires afin d’influencer l’entité de passation de marché àprendre les décisions erronées ou une mauvaise exécution du contrat

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Common Patterns or Forms of Bid-Rigging

• Cover Bidding

• Bid Suppression

• Bid Rotation

• Market Allocation

• These forms or patterns are not exclusive

E.g. Market Allocation may also involve Cover Bidding

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Cover Bidding

• Conspiring Bidders agree to submit higher prices than the firm chosen to win

• They submit bids that are made to contain special terms that make them unacceptable to the PE

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Bid Suppression

• The opposite of Cover Bidding

• 1 or more parties agree not to bid or withdraw their bid to ensure the firm chosen to win is successful

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Bid Rotation

• The systematic or random method by which the conspirators take turns being the lowest bidder

• These schemes tend to be very sophisticated because the conspirators will each try to ensure that they receive an equivalent share of the contracts

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Market Allocation

• An agreement among the Bidders not to compete for certain customers or in certain geographic regions

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Warning Signs

• The Buyer/Seller/PE is in the best position to detect bid-rigging

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Warning Signs include:• Bids exceed published list prices,

engineering or pre-tender cost estimates

• New or infrequent supplier bids, resulting in a significant drop of historic pricing structure

• Bids for Sale of Land are below Sale Price estimates

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Warning Signs include:

• Records indicate that the same supplier has been the low bidder & has been awarded the contract on several occasions

• The successful bidder sub-contracts work to its competitors that submitted higher bids for the same contract

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Warning Signs include:

• Bids from competing companies containing the same mistakes

E.g. spelling & calculation errors

• Bids of 2 competitors are submitted in the same envelope

• Bidder personally delivers their bid along with a competitor's bid

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Warning Signs include:• You are aware that competitors meet or

communicate somewhere in the vicinity of where the bids are submitted

• Bidder appears to have knowledge of competitor's bid before any contract award or release of information

• You are aware that only 1 bidder contacted wholesalers to obtain the pricing logically required to prepare bids

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Warning signs include:

• There is a large difference between the price of the winning bid & other bids

• On successive tenders, the lowest bidder does not accept the contract

• Accordingly, the award goes to the 2nd or 3rd bidder

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Penalties--Article 176

Violation of Public Procurement rules & code of conduct

Without prejudice to [the] Penal Code, heads or staff of PEs who, within the course of the public procuring proceedings, breach this Law & regulations, are liable to punishable by 6 to 12 months of imprisonment & maximum fine of 500,000 RWF, or one of the two.

• May also be liable to penalties under the Law aimed at prevention, suppression & punishment of corruption & related offences, on Statutes of Rwanda Public Service as well as by any other existing Laws & regulations in relating to the code of ethics for civil servants & staff

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Article 176 Violation des procédures de passation de marchés publics et les règles du code de conduite

Sans préjudice des dispositions du Code pénal, les dirigeants ou les agents de l’entité de passation de marchés qui, pendant le processus de passation d’un marché, violent les dispositions de la présente loi et de ses textes d’application, sont passibles d’un emprisonnement de six (6) à douze (12) mois et d’une amende ne dépassant pas cinq cent mille (500.000) francs rwandais ou l’une de ces peines seulement.

Ils peuvent également subir des sanctions prévues par la loi relative à la prévention et à la répression de la corruption et des infractions connexes, la loi portant statut général de la Fonction Publique Rwandaise ainsi que toute autre loi en vigueur en rapport avec le comportement et la conduite des agents de l’Etat et ses employés.

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Today we discussed

• Types of contracts

• Needs

• Contract checklists

• Dangers with MOUs

• Performance Guarantees

• Bid Rigging

Questions?

william kosar what every budget officer should know_rwanda

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