Legal Advice on Mis-Procurement and Red Flags in Public Procurement in Pakistan

Every year, we receive numerous queries from foreign companies who feel they have been unfairly treated by local state departments in Pakistan during the bidding process for local contracts. The PPRA Ordinance 2002 and Public Procurement Rules 2004, along with relevant provincial rules, govern this area of law. Mis-procurement, if proven in court, can lead to the cancellation of bids and the initiation of a proper inquiry into the government department involved. We always advise foreign companies to engage a lawyer from the beginning of the tender process to ensure compliance with the complex tender points system and to protect their long-term profitability and corporate survival in Pakistan.

A key red flag indicating mis-procurement is the presence of a dubious evaluation criteria set by a local public agency in its tender documents. Proper evaluation criteria, clearly stated in the bidding documents, are essential. Failure to provide unambiguous evaluation criteria may amount to mis-procurement.

Under Section 2 of the PPRA Ordinance 2002, mis-procurement is defined as public procurement that contravenes any provision of the ordinance, rules, regulations, or other laws related to public procurement. The Federal Government has made rules titled “The Public Procurement Rules, 2004” that comprehensively address various situations of public procurement.

To address mis-procurement issues, it is important to establish that you are the aggrieved party. Establishing “Locus Standi” is crucial, as 60% of cases are struck out due to this issue. Challenges may arise regarding the right to sue as a foreign entity, so it is advisable to have local tax and branch office certificates readily available. Additionally, proving yourself as an aggrieved party is essential. We have identified several useful cases at the bottom of this article that can assist in understanding the legal requirements.

Here is a checklist of actions to consider:

1. File a proper complaint with the grievance committee, particularly in federal territories and procurement cases. It is crucial to ensure that the state procurement agencies have a designated grievance committee. Failure to establish transparency in the committee’s formation may indicate an abuse of position leading to mis-procurement.
2. Watch for the hasty formation of the grievance committee after litigation has been initiated. This could be a sign that officials are trying to gather sufficient paperwork to prove legal compliance. Secrecy surrounding the formation of the committee goes against the transparency principles outlined in the PPRA Rules 2004.
3. Understand the role of public functionaries. They have an obligation to procure services through open, competitive, transparent, and unambiguous means. They are entrusted with protecting public interest and the interest of the authority, and should not extend undue favors.
4. Public functionaries must act responsibly and diligently, avoiding the use of private emails for official communications. Private email communications and repetitive requests for clarifications without valid reasons can indicate mis-procurement.
5. Be cautious if bidding results are released hastily after announcing technical scores, as this may suggest an attempt to push a pre-favored bidder through.
6. Collect detailed evidence, such as photographs and documents, to support your case. In one instance, the handling of bids and the lack of proper signatures revealed a deliberate mishandling of the process, violating PPRA rules.
7. Fettering of discretion by public functionaries can occur when decision-makers bind themselves to a particular policy or opinion, hindering independent judgment. This can be considered an abuse of discretion.

It is important to seek legal advice specific to your situation when dealing with mis-procurement issues. Our law firm can provide guidance tailored to your needs. Contact us at aemen@joshandmak.com for assistance or if you have any queries related to public procurement matters.

Please note that the information provided in this legal note is for general purposes only and does not constitute legal advice. Consult with a qualified legal professional for advice related to your specific circumstances.

Legal Advice Guide on Misprocurement for Foreign and Local Companies

Introduction

Misprocurement refers to any procurement activity that fails to comply with the established rules and regulations, leading to unfair, non-transparent, or biased outcomes. Foreign and local companies often face challenges when involved in public procurement processes, and it is crucial to understand the legal remedies available when confronted with situations of misprocurement. This guide provides a detailed analysis of misprocurement issues citing relevant case laws.

Case Analysis

Case 1: LAC (Pvt.) Ltd. vs. Government of Punjab

Citation: 2020 CLC 693 (Lahore High Court)

Facts:

• The case involved a foreign-funded irrigation project where the bid validity period expired, rendering the petitioner’s offer non-responsive.
• The project’s guidelines required adherence to four pre-qualification criteria: eligibility, pending litigation, financial status, and construction experience.
• Only the bid security period was extended, not the bid validity period.

Legal Findings:

• The court held that both general and specific guidelines in internationally funded projects must be followed to ensure fairness.
• The petitioner’s bid became invalid due to the expiration of the bid validity period, which was not extended as per the guidelines.
• Any violation of these guidelines could be considered misprocurement.
• The reasons for the bid being non-responsive were communicated to the petitioner, allowing them to seek remedy through appropriate legal channels rather than a constitutional petition.

Implications:

• Companies must strictly adhere to bid validity periods and guidelines in internationally funded projects.
• Any deviation may result in the bid being deemed non-responsive and constitute misprocurement.
• Remedies are available through proper legal channels if the reasons for non-responsiveness are communicated.

Case 2: Getz Pharma (Pvt.) Ltd. vs. Federation of Pakistan

Citation: 2016 PLD 420 (Karachi High Court)

Facts:

• Getz Pharma’s technical bid was rejected by the procuring agency, leading to a petition for inquiry and investigation against the authorities for misprocurement of medicines.
• The petitioner sought intervention from the National Accountability Bureau (NAB) and the Province for disciplinary proceedings.

Legal Findings:

• The Sindh Public Procurement Rules, 2010, provided mechanisms for grievance redressal (Rule 31) and appeal to the Review Committee (Rule 32).
• The petitioner had not exhausted these available mechanisms before approaching the court.
• The court highlighted the powers of the Review Committee in relation to actions by the procuring agency.
• Constitutional petition was dismissed as the petitioner had also filed a civil suit and any finding in collateral proceedings would be prejudicial.

Implications:

• Companies must utilise the grievance redressal and appeal mechanisms provided under procurement rules before seeking judicial intervention.
• Filing a civil suit alongside a constitutional petition may complicate the legal process and be considered premature.

Case 3: Hafiz Muhammad Aleem vs. Lahore Development Authority

Citation: 2012 YLR 1426 (Lahore High Court)

Facts:

• The petitioner challenged a tender for catering services finalised by the Lahore Development Authority (LDA), alleging non-compliance with the Punjab Procurement Rules, 2009.
• The LDA bypassed the procurement rules, leading to a lack of transparency.

Legal Findings:

• The court found that the LDA had violated the Punjab Procurement Rules, 2009, resulting in misprocurement.
• The tender process and subsequent proceedings lacked transparency and were set aside.
• The Punjab Procurement Regulatory Authority was directed to actively perform its functions to ensure compliance with procurement rules across the province.

Implications:

• Authorities must adhere to procurement rules to maintain transparency and fairness in tender processes.
• Non-compliance can result in tenders being set aside and contracts cancelled.

Legal Advice

1. Adherence to Guidelines:
   • Both foreign and local companies must ensure strict compliance with all pre-qualification criteria and guidelines in tender documents.
   • Pay particular attention to bid validity periods and ensure they are extended if necessary.
2. Utilising Grievance Mechanisms:
   • Exhaust all available grievance redressal and appeal mechanisms provided under relevant procurement rules before approaching courts.
   • Document all communications and steps taken to address grievances within the prescribed channels.
3. Transparency and Fairness:
   • Ensure that all procurement processes are conducted transparently and fairly, adhering to the applicable rules and regulations.
   • Maintain detailed records and justifications for all procurement decisions to defend against potential claims of misprocurement.
4. Legal Remedies:
   • If faced with misprocurement, seek legal advice to determine the appropriate course of action, whether it be through administrative review, civil suits, or other legal remedies.
   • Be prepared to provide evidence of non-compliance and the impact on your bid or procurement process.

Further Case Analysis

Case 1: Ch. Ata-ur-Rehman Qadri vs. Capital Development Authority

Citation: 2016 CLC 125 (Islamabad High Court)

Facts:

• The dispute involved the awarding of a contract by the Capital Development Authority (CDA) to ply shuttle coaches for the Diplomatic Enclave in Islamabad.
• The petitioner argued that the contract was awarded in violation of the Public Procurement Regulatory Authority Ordinance, 2002, and the Public Procurement Rules, 2004.

Legal Findings:

• The court determined that the contract award did not fall under any exceptions provided in Rule 42 of the Public Procurement Rules, 2004, and was thus classified as “misprocurement” under Section 2(h) of the Public Procurement Regulatory Authority Ordinance, 2002, and Rule 50 of the Rules.
• The process was deemed to be engineered and manipulated to favour the respondent, lacking transparency and violating procurement regulations.
• The court set aside the contract, directing the CDA to initiate disciplinary proceedings against officials involved and to restart the procurement process in compliance with the legal framework.

Implications:

• Companies must ensure that all procurement processes are transparent and adhere to the relevant rules and regulations.
• Any manipulation or favouritism in the awarding of contracts can lead to legal challenges and the nullification of the contract.
• Authorities are obligated to follow the prescribed procurement procedures to avoid misprocurement.

Case 2: N. Construction Company vs. Federation of Pakistan

Citation: 2013 PLD 85 (Islamabad High Court)

Facts:

• The case involved development projects in the constituency of the ex-Prime Minister, approved under his directives while in office.
• The petitioner claimed that the awarding of the projects violated procurement laws and lacked transparency.

Legal Findings:

• The court found that the projects were assigned to the National Logistic Cell (NLC), a government organization, on the ex-Prime Minister’s directives, bypassing the pre-qualified companies and violating the Public Procurement Regulatory Authority Ordinance, 2002, and Public Procurement Rules, 2004.
• The process was deemed non-transparent, causing a significant financial loss to the public exchequer.
• The court declared the assignment of the projects to NLC as illegal and ordered a fresh procurement process in accordance with the legal framework. Additionally, it directed the National Accountability Bureau (NAB) to initiate proceedings against those involved, including the ex-Prime Minister.

Implications:

• Government directives that bypass established procurement procedures can lead to substantial legal and financial repercussions.
• Companies must be vigilant about the transparency of procurement processes and should challenge any deviations from the legal framework.
• Legal recourse is available for addressing grievances arising from non-transparent and illegal procurement practices.

Definition of Aggrieved Party

Case Analysis:

1. Saeed Ismail Burero vs. Province of Sindh Citation: 2014 YLR 825 (Karachi High Court)
   • Petitioners challenged tender notices but lacked locus standi as they did not participate in the bid process.
   • The court held that only parties with a direct and substantial interest, having participated in the tender process, can invoke constitutional jurisdiction.
2. Atta Muhammad Chaniho vs. Province of Sindh Citation: 2014 MLD 221 (Karachi High Court)
   • The petitioner, a former Nazim, challenged tenders alleging violations but failed to demonstrate a direct and substantial interest.
   • The court dismissed the petition, reinforcing that only aggrieved parties with a direct interest and clean hands can challenge procurement processes.
3. Echo West International (Pvt.) Ltd. vs. Government of Punjab Citation: 2009 CLD 937 (Supreme Court)
   • The petitioner, a bidder, attempted to frame the case as public interest litigation but was found to have personal economic interests.
   • The Supreme Court held that the litigation was not in public interest and dismissed the petition, emphasizing the need for genuine public interest to challenge procurement processes.
4. M.K. International vs. Sui Southern Gas Company Citation: 2016 CLC 1 (Karachi High Court)
   • The petitioner challenged blacklisting by SSGC but the court found the issue involved factual disputes unsuitable for constitutional jurisdiction.
   • The court reiterated that constitutional petitions should not be used for factual disputes and urged the petitioner to seek alternative remedies provided under the procurement rules.

Legal Advice

1. Adherence to Procurement Rules:
   • Both foreign and local companies must strictly adhere to the Public Procurement Rules, 2004, and any other relevant regulations during procurement processes.
   • Ensure all tender documents and submissions comply with the specified criteria to avoid being deemed non-responsive.
2. Utilising Grievance Mechanisms:
   • Use the grievance redressal and appeal mechanisms provided under the procurement rules before approaching courts.
   • Document all steps taken to address grievances within the prescribed channels to build a robust case if legal intervention becomes necessary.
3. Maintaining Transparency and Fairness:
   • Ensure transparency and fairness in all procurement activities to avoid allegations of misprocurement.
   • Maintain detailed records of all procurement decisions and communications to defend against potential legal challenges.
4. Legal Recourse for Misprocurement:
   • If faced with misprocurement, seek legal advice to determine the appropriate course of action, including filing constitutional petitions or civil suits.
   • Be prepared to provide evidence of non-compliance and the impact on your bid or procurement process.

Conclusion

Misprocurement can significantly impact both foreign and local companies involved in public procurement processes. By adhering to guidelines, utilising grievance mechanisms, ensuring transparency, and seeking appropriate legal remedies, companies can navigate these challenges effectively. The cited cases underscore the importance of compliance and the availability of legal channels to address procurement disputes.

Misprocurement occurs when procurement activities fail to adhere to the established legal and regulatory frameworks, resulting in unfair, non-transparent, or biased outcomes. This guide provides a detailed analysis of misprocurement issues, highlighting relevant case law to offer comprehensive legal advice for foreign and local companies.

Misprocurement can have significant legal and financial implications for both foreign and local companies. Adherence to procurement rules, utilising grievance mechanisms, maintaining transparency, and seeking appropriate legal remedies are essential strategies to navigate these challenges effectively. The cited cases underscore the importance of compliance and the availability of legal channels to address procurement disputes.

The requirement that as per the law that the members of grievance committees must be listed on procuring agency’s website in advance.

PROCUREMENT PLANNING

PPRA Rules 2004

RULE 8. Procurement planning.-Within one year of commencement of these rules, all procuring agencies shall devise a mechanism, for planning in detail for all proposed procurements with the object of realistically determining the requirements of the procuring agency, within its available resources, delivery time or completion date and benefits that are likely to accrue to the procuring agency in future.

 

 

PPRA INSTRUCTIONS

No.F.2 – 1/M&I/2014

Government of Pakistan

Public Procurement Regulatory Authority

(Cabinet Division) FBC Building, Sector G-5/2

NAZRAT BASHIR

Managing Director

Subject: PROCUREMENT PLAN AND ITS UPLOADING ON THE PPRA

WEBSITE

Dear Secretary,

Preparation of Annual Procurement Plan by every procuring agency of the Federal Government and its uploading on the PPRA website and the procuring agency’s own website (if any) is mandatory, in terms of Rule 8 & 9 of the Public Procurement Rules 2004. Failure to do so straightaway leads to misprocurement which cannot be condoned either under the PPRA Ordinance, 2002 or any other law of the land.

2. Inspite of the above clear cut mandatory requirements of the Rules, most of the procurement agencies neither prepare their Annual Procurement Plans nor upload them on the PPRA website before start of actual procurement. Please note that any procurement without a publicized procurement plan on the PPRA website is a mis- procurement, under the Rules.
3. Since the new financial year is going to start w.e.f. 01-07-2014, all procuring agencies are requested to prepare and upload their respective plans on the PPRA’s website on the enclosed proforma before initiating the actual procurements. From July 1, 2014, the procurement advertisements of the defaulting organizations will be marked by the Authority as violation of the Rules 8, 9 of the Public Procurement Rules, 2004 and conveyed to the respective procuring agencies.

Encl: as above

All Federal Secretaries

82

Yours sincerely,

Sd/-

(NAZRAT BASHIR)

Islamabad, the 19th May, 2014

PPRA INSTRUCTIONS

No.F.1(3)/AD-II/PPRA/12

Government of Pakistan

Public Procurement Regulatory Authority

(Cabinet Division) FBC Building, Sector G-5/2

NAZRAT BASHIR

Managing Director Islamabad, the 6th August, 2012

 

 

Subject: ANNOUNCEMENT OF EVALUATION REPORTS

Dear Secretary,

The Public Procurement Regulatory Authority (PPRA) has been mandated to ensure transparency, economy, efficiency and accountability of the public sector procuring agencies / organizations through monitoring and implementation of Public Procurement Rules, 2004. It is encouraging to note that since promulgation of these rules the rate of violations of these rules has decreased substantially. However, procuring agencies do not strictly follow some of these rules in letter and spirit.

2. In terms of Rule 35, the procuring agencies shall announce the results of bid evaluation in the form of a report giving justification for acceptance or rejection of bids at least ten days prior to the award of procurement contract. Specimen of Bid Evaluation Report is enclosed.
3. In view of above, it would be appreciated if the organization(s) under the administrative control of your Ministry / Division are directed to ensure compliance of Rule 35 of the Public Procurement Rules, 2004 referred to in the preceding paragraph.

Yours sincerely,

Sd/-

(Nazrat Bashir)

With best regards, Encl: as above

 

All Federal Secretaries

PPRA INSTRUCTIONS

EVALUATION REPORT

(As per Rule 35 of Public Procurement Rules, 2004)

1. Name of Procuring Agency ……………………………………………………
2. Method of Procurement ………………………………………………………
3. Title of Procurement …………………………………………………………..
4. Tender Inquiry No……………………………………………………………
5. PPRA Ref. No. (TSE) ………………………………………………………..
6. Date & Time of Bid Closing ……………………………………………………
7. Date & Time of Bid Opening …………………………………………………
8. No. of Bids Received …………………………………………………………
9. Criteria for Bid Evaluation ……………………………………………………
10. Details of Bid(s) Evaluation ………………………………………………….

     Name of Bidder

     Marks

   Evaluated Cost

   Rule/Regulation/SBD*/Policy/ Basis for Rejection / Acceptance as per Rule 35 of PP Rules, 2004.

   Technical

(if applicable)

Financial

(if applicable)

                                                    

(Add Column if Required)

                         Lowest Evaluated Bidder ……………………………………………………………

 

11. Any other additional / supporting information, the procuring agency may like to share

Signature ………………………………

Official Stamp ………………………………

 

*Standard Bidding Documents (SBD)

 

PPRA INSTRUCTIONS

No.F.3(5)/DD-II/PPRA/2009

Government of Pakistan

Public Procurement Regulatory Authority

(Cabinet Division) FBC Building, Sector G-5/2

Islamabad, February 10, 2010

Subject: GRIEVANCES REDRESSAL AND PRINCIPAL ACCOUNTING

OFFICERS

My dear Secretary,

Pivotal position of Principal Accounting Officer in our system of governance needs no underscoring nor can the importance of transparency in procurement process be minimized. Part and parcel of transparency is the mechanism to redress grievance.

2. PPRA has sufficiently brought out the rule position of grievance handling along with the requirement to form Grievance Redressal Committees. This request did not meet a resounding response; the result can be viewed at www.ppra.org.pk where Committees stand uploaded for the benefit of aggrieved bidders and the public to meet the tenets of transparency.
3. To strengthen the mechanism as provided under Rule 48 of Public Procurement Rules 2004, the Principal Accounting Officer as a next logical step should conduct an administrative review on the findings of complaint and take action in accordance with conduct rules in the event of unfair and non-transparent procurement process. The decision of administrative review shall be communicated to PPRA, the aggrieved bidder and the procuring entity prior to the award of contract without retarding the procurement process.
4. The intent is to complete the first tier Grievance Redressal mechanism. The second tier is under active deliberation.

Hafeez ur Rehman

Managing Director Tele:051-9224824 Fax: 051-9224823

With best regards,

All Federal Secretaries

70

Yours sincerely,

Sd/-

(Hafeez ur Rehman)

 

 

PPRA INSTRUCTIONS

D.O.No.4-2/M&I/2014

Government of Pakistan

Public Procurement Regulatory Authority

Cabinet Division

NAZRAT BASHIR

Managing Director Islamabad, the 29th October, 2014

Subject: REDRESSAL OF GRIEVANCES BY THE PROCURING AGENCY Dear Secretary,

The Public Procurement Regulatory Authority (PPRA) has been mandated to ensure transparency, economy, efficiency and accountability of the public sector procuring agencies / organizations through monitoring and implementation of Public Procurement Rules, 2004.

2. Rule 48(1) of the Public Procurement Rules, 2004 provides that the procuring agency shall constitute a committee comprising odd number of persons, with proper powers and authorizations to address the complaints of bidders that may occur prior to entry into force of the procurement contract. The redressal process and further recourse is laid down in Rule 48(2), (3), (4) & (5). This Authority had already issued instructions in this regard vide D.O. letter No. 3(5)/DD-II/PPRA/2009, dated 23-12-2009.
3. In some cases, grievances redressal committees have not been constituted to grant right to the bidders to represent against the decision of the procuring agency, as a legal obligation. Resultantly, PPRA is in receipt of numerous complaints expressing grievances against various procuring agencies.
4. In view of the above, kindly ensure compliance of Rule 48(1) of the Public Procurement Rules, 2004 and provide the details of the Committee constituted to this Authority on the enclosed proforma for uploading the same on its website.