Public procurement in Sri Lanka has been a hotspot for corruption for decades and it is no secret that many politicians and the private sector have profited while the credibility of successive governments has dropped in the eyes of the public.
After the economic crash in 2022, Sri Lanka took steps to bring in the National Procurement Commission (NPC), which was implemented during the ‘Yahapalana’ Government between 2015-2019 with the intention of addressing the procurement problem.
According to the new guidelines by the NPC, public entities must procure goods, services, works, consultancy services, and information systems in compliance with procurement procedures specified in written laws and guidelines issued by the commission.
Public entities must prepare and provide annual procurement plans to the secretary to the Treasury or the respective chief accounting officer, ensuring that procurement activities are planned and managed efficiently
However, the recent incident involving VFS Global, which was allowed to handle visas without following a proper tender process, shows that Sri Lanka has a long way to go in terms of addressing the problem.
VFS Global fails to follow procurement process
In the report by the Committee on Public Finance (COPF), it said that the proposal by VFS Global was initially received by the Ministry of Defence in March 2022 and then VFS Global and GBS-IVS subsequently submitted a letter to the Ministry of Foreign Affairs in October 2022, where it proposed a marketing plan to boost tourist arrivals through its Electronic Travel Authorisation (ETA) platform at no cost to the Government of Sri Lanka.
It was revealed that the consortium had submitted an unsolicited project proposal to the Ministry of Public Security (MOPS) in June 2023, aimed at providing visa services, biometric services, and promoting tourism in Sri Lanka.
Following Cabinet approval, the Outsourcing Agreement between the consortium and the Controller General of the Department of Immigration and Emigration (DOIE) was signed on 31 December 2023.
Prior to receiving the proposal, the COPF said that a Cabinet-Appointed Negotiation Committee (CANC) had been established to assess a proposal submitted by Mobitel Ltd. in November 2020 and to oversee the development of the System Specification Requirement (SSR) by the DOIE.
“However, both Mobitel and the consortium submitted their proposals before the finalisation of the SSR. Nevertheless, the consortium’s proposal was accepted. This raises concerns regarding the process by which proposals were submitted without a finalised SSR,” the report said.
The COPF’s review identified that the proposal submitted by the consortium in 2023 had not undergone any competitive bidding process. Additionally, the marketing plan to boost tourist arrivals, which had bypassed the Sri Lanka Tourism Development Authority (SLTDA), had never materialised, leaving the promised benefit of increased tourist arrivals unrealised as outlined in the June 2023 proposal.
Finally, the COPF said that the absence of competition in the procurement process had very likely resulted in an agreement that did not provide the best value for money. Additionally, there are issues relating to the fee structures and the procurement process, including technical and software specifications, contractual agreements, potential financial and data security risks, the ambiguous investment of $ 200 million by the consortium, and its exclusivity.
PFM Bill to hinder procurement?
Last month, Transparency International Sri Lanka (TISL) filed a legal challenge against the Public Financial Management (PFM) Bill in the Supreme Court, expressing concerns over its impact on public procurement. TISL argued that the bill, introduced for its first reading in Parliament on 22 May, significantly weakened procurement controls, thereby increasing corruption risks and compromising fair competition.
Accordingly, in the filing, it said that Clause 32 of the bill granted the finance minister the power to exempt State-Owned Enterprises (SOEs) from adhering to National Procurement Guidelines and allow Provincial Councils to establish their own procurement rules. TISL’s petition claims that these exemptions violate the constitutional principles of sovereignty and equal protection under the law.
In the Supreme Court determination on the PFM Bill, the court said that the rationale for the introduction of the bill was to strengthen the public financial management system to ensure accountability, better macroeconomic management, and the prudent use of public funds.
“An effective and stringent public financial management system would no doubt ensure greater transparency in public procurement,” the determination said, adding that it was perhaps no secret that lack of transparency in procurement could distort competition and lead to corruption and that the adoption of good practices in public financial management and procurement could lead to a reduction in corruption.
On behalf of the petitioners, Viran Corea, PC submitted that the nexus between business and politics in Sri Lanka had contributed to a lack of transparency and accountability in public procurement, contract allocation, and regulatory enforcement, and that these taken together had facilitated corrupt practices, with cronyism and nepotism influencing decision-making processes and distorting market competition at almost every stage of the procurement process for goods and services for the public sector.
He submitted further that exempting SOEs from following the procurement procedures would have an adverse impact on public financial management and perpetuate a cycle of poverty and underdevelopment in the country. He stated that this directly impinged upon and entailed serious erosion and infringement of the sovereignty of the people enshrined in Articles 3 and 4 of the Constitution
A Deputy Solicitor General representing the Government submitted that some SOEs operated in the commercial sector in competition with private sector entities and that in order to stay competitive and profitable, the Government could not be constrained by a rigid set of guidelines. Hence, she submitted that there may be a necessity to formulate different guidelines for different sectors which may specifically address issues of exemptions in certain limited situations.
“While that is a matter for the NPC and is not a matter that we shall consider in this determination, this court sees no legal justification at all for exempting any SOEs from following procurement guidelines formulated by the NPC,” the determination said.
As stated earlier, all public entities deal with public funds and the rules and rigours of public financial management governing public entities must apply with equal force to all such SOEs.
The Supreme Court observed that in the 22nd Amendment to the Constitution, Article 156H would now ensure that the meaning of the words ‘government institution’ would have a broader ambit and as such would increase transparency in procurement across institutions in which substantial public funds had been invested or expended.
SL procurement lacks transparency
Speaking to The Sunday Morning, Verité Research Research Director Subhashini Abeysinghe said that Sri Lanka’s NPC was drafting a new set of guidelines and that the Government was also working with the Asian Development Bank (ABD) to bring in a procurement law.
She added that bringing in a procurement law was part of the International Monetary Fund (IMF) diagnosis recommendation by the end of the year and as per the constitutional requirement, the commission must pass procurement guidelines.
A report by Verité Research last November stated that Sri Lanka’s existing public procurement regulatory framework had failed to protect public funds from being misused and stolen by failing to blacklist firms engaging in fraudulent and corrupt practices. To rectify this situation, the report identified that there were two critical gaps that needed to be addressed without delay.
The first is a gap in the law – the procurement guidelines do not provide for blacklisting of contractors/suppliers for engaging in fraud and corruption. The guidelines however provide for blacklisting of contractors who default/fail to meet their contractual obligations. The second is a gap in compliance, i.e. the failure to even blacklist defaulting contractors that default on their contractual obligations.
The report said that this second gap showed that bridging the first gap – the gap in the law – was not sufficient and that in addition to including fraud and corruption as valid reasons for blacklisting, it was also necessary to have in place provisions to ensure compliance.
Abeysinghe said that whether the Government had addressed these two gaps identified in the proposed procurement law would only be known once the draft bill was published in public domain.
Public procurement has highest corruption vulnerabilities worldwide
On the centralisation of public procurement, Abeysinghe said that Sri Lanka had a National Procurement Agency which had tried to centralise public procurement which had been closed down and that the Finance Ministry taking over the process was not ideal.
For example, she said a country like Bangladesh did not have a national procurement commission and operated under the Ministry of Finance, but it had a blacklist of contractors which it had published on its website. “But countries like Nepal have an independent commission like the one we proposed,” she added.
However, she noted that the investigation and the determination of corruption in public procurement had to happen either jointly or at the agency level because it was only the agency that would know the details. She also called for a fair process with independent investigation and companies being provided fair opportunities to make representations as well.
Abeysinghe said that public procurement had the highest corruption vulnerability worldwide, not just in Sri Lanka, because it involved large amounts of money. “That is exactly why you need a regulatory framework which requires transparency and accountability,” she said.
IMF wants a procurement law
In the response to the IMF Governance Diagnostic report, the Government said that in assuring an expeditious and efficient public procurement process that ensured value for money and fairness, the adherence to procurement best practices had been emphasised at every level of Government to safeguard the public interest.
In terms of Article 156 B(1) of the 21st Amendment to the Constitution, the defunct NPC was re-established in 2023 vested with power for policymaking and oversight relating to public procurement.
“The reestablishment of the NPC as one of the five independent commissions under the Constitution demonstrates the Government’s strong commitment towards good governance in public procurement,” the Finance Ministry said in a statement.
Moreover, it said that the NPC was currently in the process of drafting a new procurement law which would be enacted by the end of 2024 – a commitment under the IMF Extended Fund Facility (EFF) programme.
The NPC has drafted new procurement guidelines as an interim measure and the process of obtaining approval of the Cabinet of Ministers for the same is ongoing. Moreover, the PFM Bill also clearly articulates the need for all budgetary entities and SOEs to adhere to these procurement guidelines.
Further, the statement said that the Electronic Government Procurement (e-GP) platform, which was initiated in 2019, was being expedited and expanded with grant assistance received from the European Union (EU) and the World Bank.
“The e-GP has set its target to roll out all three procurement methods – i.e. shopping, National Competitive Bidding (NCB), and International Competitive Bidding (ICB) by 2025. Currently, the eGP facilitates public procurement under the shopping procedure,” the Finance Ministry statement said.
Procurement law drafted, guidelines to be converted to regulations
Speaking to The Sunday Morning, NPC Policy Division Director A.D.P.I. Prasanna said that procurement law had been drafted by the commission while the guidelines issued had been presented for Cabinet approval. He said that these guidelines would be converted into regulations which came under the umbrella law.
However, he said that the framework for pharmaceutical procurement had been implemented and that the blacklisting of contractors who had failed to meet contractual obligations had been included in the proposed law.
Decentralised element in NPC
Speaking to The Sunday Morning, Advocata Institute Chief Executive Officer (CEO) Dhananath Fernando said that centralising public procurement under the NPC through guidelines was better than what it used to be. However, he said that although there was a Procurement Committee under the Cabinet, there wasn’t much transparency.
He noted that there would ultimately be a decentralised element in the NPC because different sectors required different processes in obtaining procurement in terms of evaluation techniques and thresholds( e.g. agriculture-related procurement vs. health-related procurement). “But what sets up the procurement law is providing a broader guideline,” he added.
SriLankan Airlines divestiture fell apart after proper tender process
Regarding the SriLankan Airlines divestiture which fell apart recently after following a proper tender process, Fernando said that multiple bidders for SriLankan Airlines had backed out and that the airline was in a situation where there were no bidders at all. “I think the Government tried to save face by stating the cancellation of the divestiture,” he added.
“The Cabinet at a meeting on 9 July decided to terminate the current bidding process with regard to the divestiture of SriLankan Airlines,” it said in a brief statement without giving any reasons for the decision. It added that the Government would follow an “alternate strategy to be decided shortly, to divest the airline based on a framework approved by the Cabinet of Ministers”.
In conclusion, Fernando said that every time there was an unsolicited proposal, there was also an element of corruption involved in it.