Financial Management Models for Workforce Development under IDAs Thanikachalam Vedhathiri, B.E., M.Tech., Ph.D ., M.S., FIE., FIGS
Role of IDAs • Ensure that the proceeds of any lone made, guaranteed, or participated in by IDAs are to be used for the purposes for which the loan was granted with due attention to considerations of economy and efficiency
Executing and Implementing Agencies • Public Corporations owned and controlled by governments • Created for the purpose of producing goods or services for the market • Private sector and nongovernment entities (profit making/ nonprofit making) • Government sector units/ ministries/departments
Financial Management • -
Comprises of: Financial accounting Cost accounting Asset management Cash and treasury management Financial reporting Internal controls Internal and external audit
Sub-processes • • • • • • • • •
Management Forecasting Strategic planning Budgeting Procurement Disbursement Control Communications Reporting
Cost Estimates • To be prepared at the concept stage • To be refined throughout the project preparation process • To be updated during implementation
Financial Analysis • Transformation of financial data into a form that can be used monitor and evaluate: - An entity’s financial position - Plan future financing - Assess the entity’s size and growth rate - Uses financial projections and financial performance indicator analysis
Purpose of Financial Evaluation • To assess the financial viability of a project or project component
Financial Evaluation • Cost-benefit analysis • Process of Comparing the Financial Benefits of a project or project component as indicated by the Financial Internal Rate of Return [FIRR] to the financial costs as indicated by the Weighted Average Cost of Capital [WACC]
Financial Performance Indicators • Use to evaluate an entity’s liquidity, solvency, return on investment, operating performance • For a given period compare with prior periods and industry norms
Policy of IDAs • Preparatory activities involve the completion assessment of executing and implementing agencies • The preparation of cost estimates and financial plan • A financial analysis • Financial evaluation of the project/ project components • Ultimate outcome: Determine whether the project is financially viable and sustainable
Financial Management Assessment [FMA] • Assesses the capacity of executing and implementing agencies and their systems in the areas of planning and budgeting, management and financial accounting, auditing, and internal controls. • Reviews proposed disbursement and fund flow arrangement, and identifies measures for addressing identified deficiencies.
Cost Estimates • The executing agency is responsible for the preparation of the cost estimates • To be prepared during project processing • Should identify the principal cost components needed to determine the financing requirements and support effective project management • Includes monitoring of costs and physical progress during implementation • Should be supported by verifiable data • Comprises of the base cost, reasonable physical and price contingencies and financial charges during implementation
Financial Plan • The executing agency is responsible for the preparation of the financial plan • Checks the availability of resources to cover the base cost, physical and price contingencies and applicable financial charges during implementation
Financial Statements • Present the projected financial statements for the executing agency • Should reflect the financial impacts of the project or project components • Present an analysis of key financial performance indicators
Incremental Costs • Present incremental recurrent costs associated with the project • Assess the capacity of executing agency to meet these costs
Financial Viability • Assess the financial viability due to increased revenues, efficiency improvements, or cost savings • Check the cost- benefit analysis
Risk Analysis • Identify the risks to financial viability and sustainability
World Bank’s Quality- and Cost- Based Selection [QCBS] • QCBS uses a competitive process among shortlisted firms • Takes into account the quality of the proposal and the cost of the services in the selection of the successful firm • Cost as a factor of selection shall be used judicially • The relative weight to be given to the quality and cost shall be determined for each case depending on the nature of the assignment
Selection Process • Preparation of the TOR • Preparation of cost estimate and the budget, and short-listing criteria • Advertising • Preparation of short list of consultants • Preparation and issuance of the Request for Proposal (RFP)
RPF and follow ups • • • • • • • • •
Letter of invitation (LOI) Instruction to Consultants (ITC) The TOR Proposed draft contract Receipt of proposals Evaluation of technical proposals: consideration of quality Public opening of financial proposal Final evaluation and quality and cost Negotiations and reward of the contract to the selected firm
Terms of Reference (TOR) • The Borrower is responsible for preparing the TOR for the assignment • Should be compatible with available budget • Shall define the objectives, goals, scope of the assignment, and provide back ground information • For training programs, the number of staff has to be included • Should provide the list of services • Should not be too detailed and inflexible • Should clearly list the responsibilities
Cost Estimate • • • •
Fee based on the experts time Cost per day/week/month Logistical support Physical inputs like training manuals, slides, video programs, working models, work books • Reimbursable items like travel and per diem cost
Advertising • Assignments costing more than US $ 300,000 should be advertised UN Development Business online (UNDB online) • To obtain EOIs, the borrower has to advertise in the national newspapers, gazette, technical or financial journal • Minimum 14 days has to be given for response.
Short List of Consultants • The borrower is responsible for preparing short lists • The borrower has to give first consideration to those firms expressing interest that possess the relevant qualifications. • Short list should contain six firms with wide geographic spread and at least one firm from a developing country • If there is a need, the borrower can solicit interest from qualified firms based on its own knowledge. • Or the Bank may assist • The borrower can not modify the list once the Bank has issued no objection.
Evaluation of Proposals • Evaluation of the proposals should be carried out in two stages: first the quality and then the cost • A committee of three members are required • Criteria: Consultant’s specific experience: 0-10 • Methodology: 20-50 • Key experts: 30-60 • Transfer of knowledge:0-10 • Participation of national experts: 0-10 • Total: 100 • Overall minimum technical score: 70-85
Opening of Financial Proposals • The borrower has to inform the qualified consultants the date, time and place for opening the financial proposals. • The technical scores, and the bid value are to be read aloud and posted online • The borrower should send the minutes of opening to the Bank and all consultants who submitted the proposals • The proposal with the lowest offered would be given a financial score of 100.
Fraud and Corruption • Bank requires that borrowers, bidders, suppliers, and contractors observe the highest standards of ethics during execution of the projects
Corrupt Practice • Means the offering, giving, receiving, or soliciting, directly or indirectly, or any thing of value to influence the action of a public official in the procurement process or in contract execution.
Fraudulent Practice • Means a misrepresentation or omission of facts in order to influence a procurement process or the execution of a contract;
Collective Practices • Means a scheme or arrangement between two or more bidders, with or without the knowledge of Borrowers, designed to establish bid prices at artificial, non- competitive levels
Coercive Practices • Means harming or threatening to harm, directly or indirectly, persons, or their participation in a procurement, or affect the execution of a contract
Rejection of a Proposal • Bank will reject a proposal for award if it determines that the bidder recommended for award has, directly or through an agent, engaged in corrupt , fraudulent, collusive, or coercive practices in competing for the contract in question;
Cancelation • Bank will cancel the portion of the loan allocated to a contract if it determines at any time that representatives of the Borrower or of a beneficiary of the loan engaged in corrupt, fraudulent, collusive practices during the procurement or the execution of that contract, without the Borrower having taken timely appropriate action satisfactory to the Bank to remedy the situation.
International Competitive Bidding (ICB) • Payments on the basis of a lump sum, unit prices, reimbursable cost plus fees or combination there of. • Under the Conditions of high risks • Where costs can not be determined in advance with sufficient accuracy • Shall include appropriate incentives to limit costs
Turnkey Contract under ICB • Engineering Design, Fabrication, Supply and Installation of Equipment • Construction of a Complete Facility provided under one contract. • Borrower is responsible for design and invites bits from contractors for construction
National Competitive Bidding • If ICB is not economic and efficient, then Bank permits NCB. • If ICB does not attract many international companies, then NCB would be useful • Competitive bidding procedure used for public procurement • Advertisement is limited to national press • Other procedure remains same
Shopping • Shopping is a procurement method based on comparing price quotations obtained from several suppliers/ contractors • Minimum should be three to assure competitive prices • The evaluation of quotations shall follow the same principles as open bidding
Direct Contracting • Without competition • An existing contract for goods or works, awarded in accordance with procedures acceptable to the Bank, may be extended for additional goods or works of similar nature. • The Bank shall be satisfied in such cases that no advantage could be obtained by further competition and the prices on the extended contract are reasonable.
Force Account • Construction by the use of Borrower’s own personnel and equipment • Justification: - Quantities of works involved cannot be estimated earlier - Works are small & scattered or in a remote locations for which qualified construction firms are unlikely to bid at reasonable prices - Work is required to be carried out without disrupting ongoing operations - Risks of unavoidable work interruption are better borne by the Borrower than by a Contractor; and - There are emergencies needing prompt attention
Procurement under BOO/BOT/BOOT • • • • •
BOO: Build, Own, Operate BOT: Build, Operate, Transfer BOOT: Build, Own, Operate, Transfer To be selected under ICB procedure Project Appraisal Document and Loan Agreement should specify the type of expenditures which Bank financing will apply
Performance Based Procurement • Also called Output- Based Procurement • Follows competitive based processes (ICB, NCB) • Payments are made for measured outputs instead of inputs • The technical specifications define the desired result • Should satisfy the functional need both in terms of quality, quantity and reliability • Payments would be reduced for low quality outputs • Premiums would be made for high quality outputs
Involvement of Output Based Procurement • Provision of services to be paid on the basis of outputs • Design, Supply, Construction or rehabilitation or commissioning of a facility to be operated by the borrower • Provision of services for its operation and maintenance for a defined period after its commissioning
Repayment of Loan made by another Lender by the Bank • Bank may guarantees the payment of a loan made by another lender • Shall be procured with due attention to economy and efficiency • In accordance with procedures as applicable
Community Participation in Procurement • • • • • •
In the interest of project sustainability To achieve certain objectives of the project Call for the participation of local communities Nongovernment organizations to deliver services Increase the utilization of local know-how and materials Employ labor-intensive and other appropriate technologies • Efficient and are to be acceptable to the bank • To be outlined in the Loan Agreement
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