Govt starts procurement before loan deals to speed up dev projects

To speed up development projects, the government and development partners are experimenting with an "advance procurement" approach, which could potentially save months, even years, by getting key procurement steps underway even before the final loan agreement is inked.

Advance procurement usually refers to starting procuring goods, services, and works until awarding contracts before the effective date of the financing agreement.

For years, development projects have been plagued by time and cost overruns, often due to a slow-moving procurement process that only starts after final loan agreements are signed with development partners.

Currently, two projects adopting the advanced procurement approach have shown promising results, said officials at the Economic Relations Division (ERD).

One is Dhaka Wasa's water supply project financed by the New Development Bank (NDB).

Dr Md Mizanur Rahman, deputy managing director of Dhaka Wasa, told TBS, "To speed up project execution, Dhaka Wasa, with NDB's approval, initiated advance procurement before finalising the loan agreement. Consultant selection is underway, aiming to sign the loan agreement by June 2024. This approach maximises the loan grace period for cost-effective project delivery."

Even before the Wasa project, the Asian Development Bank (ADB)-funded Dhaka-Sylhet highway project also adopted an "advanced procurement" approach, appointing consultants and contractors ahead of the final loan agreement.

AK Mohammad Fazlul Karim, director of the Dhaka-Sylhet corridor road investment project, said, "Within just two months of project approval in February 2021, we launched tenders, saving over six months in securing vital consultants and contractors."

According to ERD officials, the lengthy procurement system, starting only after loan agreements, stalls project progress and cuts into crucial loan grace periods. Each purchase can take a whopping 3-5 years, cancelling out the benefits of delayed repayments.

Advance procurement usually refers to starting procuring goods, services, and works until awarding contracts before the effective date of the financing agreement.

Dr Mohammad Emdad Ullah Mian, member (secretary) at the Physical Infrastructure Division of the Planning Commission, said, "Our primary goal is to eliminate implementation delays. The advanced procurement process aims to streamline purchasing upfront, saving precious time throughout project execution."

"All government agencies are working to adopt this parallel approach for projects implemented with development partners. The ERD is actively seeking to incorporate advance procurement wherever feasible during loan negotiations," he added.

Back in 2017, a gazette titled "Funding and Management Policies for Project Formulation and Preparatory Work" was issued charting a path towards timely and cost-effective project completion. 

The gazette emphasised the need to finalise all preparatory work, including procurement, before embarking on the main construction phase of any project. Despite clear directives, its execution has faltered.

ERD officials said the New Development Bank (NDB) has incorporated the "advance purchase" option into its project procurement policy. The ERD also proactively engages with other development partners to expand the reach of this approach.

The World Bank, while not yet employing formal advance procurement, utilises a "preparatory fund" for critical early project stages like feasibility studies and design. However, some sources within their Dhaka office acknowledge limitations in its effectiveness.

Wasa's water supply project

The project was approved by the Executive Committee of the National Economic Council (Ecnec) in November 2023. The final agreement with the NDB for a $320 million loan for the project is yet to be inked.

The NDB gave its nod to the "advance purchase" approach during their project loan review mission to Bangladesh in May 2023, as confirmed by both ERD and Dhaka Wasa sources.

"Advanced procurement could shave at least a year off this process. In contrast, traditional post-contract consultant selection dragged project initiation out by up to five years," Wasa's DMD Mizanur Rahman said.

Despite appointing consultants, Dhaka Wasa officials clarified that the actual project work awaits the finalisation of the loan agreement with NDB.

The project consists of construction and rehabilitation of water distribution infrastructure in the 16 unions that recently became part of Dhaka City; development of a water transmission and distribution network for currently unserved areas in the Padma northwest sector; improvement of efficiency of Dhaka's water supply network, including introduction of innovative technologies.

The project aims to create around 70,000 new water supply connections and reduce the non-revenue water (NRW) rates to below 15% in the project area. Upon completion, the project is expected to benefit about three million residents in Dhaka.

Dhaka-Sylhet highway project

The loan agreement for this project was signed with the ADB in October of that year. The contractor recruitment process for 13 packages under this project has been completed recently, he added.

Roads and Highways Department officials said the construction work of this project is expected to begin in the current fiscal year.

ADB's default option

Leading the charge, the ADB has embraced advance procurement as the default option for its projects, recognising its power to streamline operations and minimise delays. This proactive approach not only cuts back on project startup time and enhances readiness, but also reduces cost implications for ADB itself. 

Advance procurement is now a cornerstone of their project readiness criteria, slated for full implementation in 2024, according to ADB's Dhaka office.

The project is being implemented under the South Asia Subregional Economic Cooperation (SASEC) programme.

The ADB in August 2021 approved a $1.78 billion multi-tranche financing facility (MFF) to improve mobility, road safety, and regional trade along the Dhaka-Sylhet trade corridor in Bangladesh.

The loan will be delivered in four tranches, according to the global lender.

The $400 million first tranche of the MFF will help finance the initial works of the major contracts for the widening of about 210 km of National Highway 2 along the Dhaka-Sylhet corridor from two to four lanes. It will include 60 km of footpath, 26 foot bridges, and 13 overpasses.

The government will fund $911 million of the total project cost of $2.69 billion.

The Dhaka-Sylhet corridor, once complete, will support a new trade route connecting Chattogram port with India's northeastern states through the three land ports of Akhaura, Sheola, and Tamabil, and from there to Bhutan and Myanmar.

Advance procurement must be backed by integrated plan

While acknowledging the procurement process as a major source of delays, Zahid Hussain, former lead economist at the World Bank's Dhaka office, highlights additional bottlenecks. 

Appointing key personnel like project managers, accountants, and procurement specialists before forming a cohesive team can hamper even "advance procurement" efforts, he said.

Zahid Hussain emphasised the need for a holistic approach to advance procurement, stressing its core goal of minimising time overruns. He therefore advocated for coordinated efforts across all aspects to tackle the time overrun challenge effectively.

Even with "advance procurement," land acquisition snags and faulty initial designs can stall progress. Both revisions to project proposals and design errors, unfortunately frequent in projects, consume precious time, impeding smooth implementation, the economist added.