25% of govt procurement must come from CMSMEs

Summary:

• The new law would relax the condition of the open tender method
• It will also relax such obligations as publishing tender notices in newspapers and paying tender prices by suppliers
• The proposed law would ensure 50% advance payment to suppliers

A new law is being formulated making it mandatory for the government to make at least 25% of its procurement from the domestic cottage, micro, small and medium enterprises (CMSMEs).

It would relax the condition of the open tender method, and some other obligations such as publishing tender notices in newspapers and paying tender prices by suppliers.

The proposed law would ensure the provision of 50% advance payment to suppliers, sharing of work among participating companies and pricing through negotiations.

The industries ministry has finalised the draft of the "Sub-Contracting Act 2022" to meet the global challenges arising from the fourth industrial revelation and to accelerate the pace of industrialisation in the country.

The ministry had earlier invited public opinions on the draft and has arranged an inter-ministerial meeting for Wednesday.

Under the new law, small entrepreneurs will be able to supply imported goods and parts as domestic products with at least 50% value addition. Apart from that, required financial and technical support would be provided to the companies interested in acquiring the capacity to produce items not manufactured in the country.

The industry insiders anticipate that the mandatory public procurement from the domestic source would help CMSMEs increase their revenue, skills and capacity. The initiative would also help them to recover from the impact of the Covid-19 pandemic.

Experts on public procurement also welcomed the law terming it a great opportunity for small-size enterprises but expressed concern about the scope of rising corruption in public procurement as the new law proposes some relaxations.

Despite a lack of official data on the SME sector in Bangladesh, a study by the Asian Development Bank found the contribution of the sector was 25% of GDP in 2015.

The government set a target to increase the share to 32% by 2025. The new law would be helpful to achieve the target, said officials at the industries ministry.

They said the cottage, micro, small and medium industries have an important role to play in achieving employment and economic growth in the country.

In order to accelerate the pace of industrialisation in the country by tackling the global challenges of the Fourth Industrial Revolution, cottage, micro, small and medium industries are more appropriate and necessary, they added.

The officials said all of the ministries, divisions and agencies of the government including public corporations and companies along with their factories, workshops and projects must follow the sub-contracting rules.

Bangladesh Small and Cottage Industries Corporation (BSCIC) would prepare a list of potential small enterprises. The BSCIC also would make a list of public procuring entities and update it regularly.

The proposed law would mandate limited tender to procure items having more than one supplier. However, the notification of such tender does not have to be published in newspapers. No payment has to be made for participation in such a tender procedure.

The tender committee would finalise the package price with a supplier when only one enterprise participates in the tender.

The procuring enterprise would provide technical and financial services to procure items which are not being produced in the domestic territory. The procuring entity would communicate with the potential supplier following the recommendation of BSCIC.

A three-year agreement would be signed with the supplier if the enterprise succeeds to innovate new products and services.

The SME Foundation had earlier urged the industries ministry for the initiative to ensure a 25% share of public procurement and the ministry forwarded it to the Central Procurement Technical Unit (CPTU) of the Implementation Monitoring and Evaluation Division (IMED) of the planning ministry.

The IMED is working to update the Public Procurement Rule 2008 under the Public Procurement Act 2006 in this regard.

Md Mafizur Rahman, managing director of the SME Foundation, told TBS that the new law would be helpful to increase the strength of the cottage, micro and small industries in terms of the flow of money, technology and innovation.

He said the small enterprises are creating more employment with a lower level of investment. Accelerating demand from the government side would help to increase the employment and income engaged in the sector.

He also said all of the neighbouring countries set a quota in public procurement for CMSMEs. The Bangladesh government had also formulated such a rule in 1976 for BSCIC suppliers, but it did not effect. That is why the new law is important, he explained.

Mirza Nurul Ghani Shovon, president of the National Association of Small and Cottage Industries of Bangladesh (NASCIB), said the entrepreneurs of the cottage and small industries are yet to recover from the devastating loss due to the adverse impact of Covid-19. The new law would be helpful to recover the loss.

The implementation of a sub-contracting law would reduce import dependency and help the country save foreign currency.

Md Habib Ullah Majumder, former secretary of the IMED, expressed confusion about the necessity of a new law under the industries ministry to manage the share of the CMSMEs, with the public procurement act and public procurement rules in place.

He said all of the regulatory issues are being managed by the CPTU under the existing public procurement act and its rules. A simple update of the rules would be enough to ensure the share of CMSMEs.

"Whatever the new law would be formulated, the public procurement would be managed by the CPTU," he said and added any undue relaxation would open another window of corruption.