RFP-111-09-000001.doc

ISSUANCE DATE: May 13, 2009 CLOSING DATE: June 24, 2009

CLOSING TIME: 5:00 PM (Yerevan Time)

Subject: Request for Proposal (RFP) No. 111-09-000001, USAID/Armenia Pension and Labor Market Reform Program (PALM) The United States Government, represented by the U.S. Agency for International Development (USAID), is seeking proposals from qualified organizations interested in providing the services described in the attached solicitation.

If you decide to submit a proposal, it must be submitted in accordance with the attached solicitation and received in Yerevan no later than the date and time indicated above. Offerors are advised that a minimum of 5 days should be allowed for proposals sent by courier. A minimum of 3 weeks should be allowed for proposals sent through the Washington, D.C. State Department address.

This procurement shall be conducted under full and open competition, under which any type of organization (large or small commercial for profit firms, educational institutions, non-profit organizations) is eligible to compete. The procedures set forth in FAR Part 15 shall apply. Cost proposals shall be evaluated as a part of a Best Value determination for contract award.

USAID plans to award a 3-year cost plus fixed fee, completion type contract with a total estimated cost in the range of $5 to $6 million for the implementation of this activity. Revealing the cost range for the contract does not mean that offerors should necessarily strive to meet the maximum amount.

It should be noted that if the Offeror (Prime Contractor) is not a U.S. small business, U.S. small disadvantaged or U.S. women-owned small business concern, a small business subcontracting plan must be submitted as a part of the proposal. Pursuant to FAR 19.702(a) (1), if an acceptable subcontracting plan cannot be negotiated, the Offeror will be ineligible for award.

As part of the evaluation criteria addressing Past Performance, offerors are required to demonstrate effective use of Small, Small Disadvantaged and Women-owned Small Businesses in activities undertaken in the past. This factor will not apply to a U.S. SDB Offeror. Information required for evaluation of this factor may go beyond, and require supplementation to, the information included in the small business subcontracting plan described in the preceding paragraph.

The NAIC Codes for this solicitation is 541618. The small business size standard for this procurement is a U.S. firm which is organized for profit and whose average annual receipts during the Offeror’s preceding three years does not exceed $27.5 million.

This solicitation in no way obligates USAID to award a contract, nor does it commit USAID to pay any cost incurred in the preparation and submission of the proposal.

Potential offerors may submit questions in writing or via email to Mr. Armen Yeghiazarian, Acquisition Specialist USAID/Armenia no later than May 21, 2009. All questions submitted before May 21, 2009 will be answered via an amendment to the solicitation. Mr. Yeghiazarian can be reached via e-mail at ayeghiazarian@usaid.gov or via facsimile at (374-10) 494 466. Receipt of this RFP through the internet must be confirmed by written notification to Mr. Yeghiazarian if the Offeror wishes to be notified of any amendments to the solicitation. Offerors should retain for their records copies of any and all enclosures which accompany their proposals.

Sincerely, John F. Lord

Regional Contracting Officer

USAID/Caucasus

Table of Content page

4Solicitation/Contract Form

1SECTION B - Supplies or Services/Prices B-

1B. 1

PURPOSE

B-

1B. 2

CONTRACT TYPE - CPFF COMPLETION

B-

1B. 3

ESTIMATED COST, FIXED FEE, AND OBLIGATED AMOUNT

B-

1B. 4

COST REIMBURSABLE

B-

1B. 5

PRICE SCHEDULE

B-

2B. 6 INDIRECT COSTS

B-

2B. 7 CEILING ON INDIRECT COSTS

B-

1SECTION C - Description/Specifications C-

1C. 1

EXECUTIVE SUMMARY

C-

3C. 2

PENSION SYSTEM AND LABOR MARKET OVERVIEW

C-

6C. 3

USAID TECHNICAL ASSISTANCE IN PENSION AND OTHER SOCIAL

C-

6c. 4 RELATIONSHIP to the country assistance strategy C-

9C. 5

STATEMENT OF WORK

C-

1SECTION D - Packaging and Marking D-

1D. 1

752.7009 MARKING (JAN 1993)

D-

1D. 2

BRANDING POLICY

D-

1SECTION E - Inspection and Acceptance E-

1E. 1

INSPECTION AND ACCEPTANCE

E-

1E. 2

NOTICE LISTING CONTRACT CLAUSES INCORPORATED BY REFERENCE

E-

1SECTION F - Deliveries or Performance F-

1F. 1

PERIOD OF PERFORMANCE

F-

1F. 2

REPORTS AND DELIVERABLES OR OUTPUTS

F-

2F. 3

PERFORMANCE STANDARDS

F-

2F. 4

KEY PERSONNEL

F-

2F. 5

NOTICE LISTING CONTRACT CLAUSES INCORPORATED BY REFERENCE

F-

1SECTION G - Contract Administration Data G-

1G. 1

ADMINISTRATIVE CONTRACTING OFFICE

G-

1G. 2

CONTRACTING OFFICER TECHNICAL REPRESENTATIVE (COTR)

G-

1G. 3

PAYING OFFICE

G-

1G. 4

ACCOUNTING AND APPROPRIATION DATA

G-

1G. 5

TECHNICAL DIRECTIONS/RELATIONSHIP WITH USAID

G-

3G. 6

752.7003 Documentation for Payment. (NOV 1998)

G-

1SECTION H - Special Contract Requirements H-

H.1

NONEXPANDABLE PROPERTY PURCHASES AND INFORMATION

TECHNOLOGY ESOURCES

H-1

1H. 2

LANGUAGE REQUIREMENTS

H-

1H. 2 SUBCONTRACTING PLAN REPORT FOR INDIVIDUAL CONTRACTS AND SUMMARY CONTRACTING REPORT H-

1H. 3

EXECUTIVE ORDER ON TERRORISM FINANCING (FEB 2002)

H-

1H. 4

LOGISTIC SUPPORT

H-

1H. 5 USAID DISABILITY POLICY - ACQUISITION (December 2004) H-

2H. 6

04-06-AAPD-752.7005 SUBMISSION REQUIREMENTS FOR DEVELOPMENT EXPERIENCE DOCUMENTS

H-

3H. 7 03-12 Reporting of Foreign Taxes H-

4H. 8

AUTHORIZED GEOGRAPHIC CODE

H-

4H. 9 752.225-70 Source, Origin and Nationality Requirements (FEB 1997) H-

5H. 10

752.7004 Emergency locator information (JUL 1997)

H-

5H. 11

752.7027 Personnel (DEC 1990)

H-

1PART II - Contract Clauses I-

1SECTION I - Contract Clauses I-

1I. 1

NOTICE LISTING CONTRACT CLAUSES INCORPORATED BY REFERENCE

I-

2I. 2 52.216-24 Limitation of Government Liability (APR 1984) I-

2I. 3 52.216-25 Contract Definitization (OCT 1997) I-

3I. 4 52.217-9 Option to Extend the Term of the Contract (MAR 2000) I-

3I. 5 52.222-39 Notification of Employee Rights Concerning Payment of Union Dues or Fees (DEC 2004) I-

5I. 6 52.232-25 Prompt payment (OCT 2008) I-

1I. 7 52.232-25 Prompt payment (OCT 2008) I- 12I. 8 52.252-2 Clauses Incorporated by Reference (FEB 1998) I-

12I. 9

752.7023 Required Visa Form for USAID Participants (APR 1984) I-

12I. 10

752.7025 Approvals (APR 1984)

I-

12I. 11

752.7031 Leave and Holidays (OCT 1989)

I-

15I. 12 752.209-71 Organizational conflicts of interest discovered after award. (JUN 1993) I-

15I. 13 752.228-3 Worker's Compensation Insurance (Defense Base Act).

I-

15I. 14

752.7032 International Travel Approval and Notification RequirementS (JAN 1990) I-

15I. 15

752.7034 Acknowledgment and Disclaimer. (DEC 1991)

I-

16I. 16 752.225-71 Local Procurement (FEB 1997) I-

16I. 17 752.228-7 Insurance - Liability to Third Persons.

I-

16I. 18 752.229-70 Federal, State and Local Taxes.

I-

17I. 19

752.7002 Travel and Transportation. (JAN 1990)

I-

21I. 20

752.7010 Conversion of U.S. Dollars to Local Currency. (APR 1984) I-

21I. 21

752.7011 Orientation and Language Training. (APR 1984)

I-

22I. 22

752.7013 Contractor-Mission Relationships (OCT 1989)

I-

22I. 23

752.7014 Notice of Changes in Travel Regulations (JAN 1990)

I-

23I. 24

752.7018 Health and Accident Coverage for USAID Participant Trainees (JAN 1999) I-

24I. 25

752.7019 Participant Training (JAN 1999)

I-

24I. 26

752.7028 Differential and Allowances (JUL 1996)

I-

27I. 27

752.7029 Post Privileges (JUL 1993)

I-

27I. 28

752.7033 Physical Fitness (JUL 1997)

I-

1SECTION J - List of Documents, Exhibits and Other Attachments J-

1PART IV – Representations and instructions K-

1SECTION K - Representations, Certifications, and Other Statements of K-

1Bidders K-

1K. 1

COMPLIANCE WITH VETERANS EMPLOYMENT REPORTING REQUIREMENTS

K-

1K. 2

INSURANCE - IMMUNITY FROM TORT LIABILITY

K-

1K. 3 52.204-8 Annual Representations and Certifications (FEB 2009) K-

5K. 4 52.223-13 Certification of Toxic Chemical Release Reporting (AUG 2003) K-

1SECTION L - Instructions, Conditions, and Notices to Bidders L-

1L. 1

NOTICE LISTING SOLICITATION PROVISIONS INCORPORATED BY REFERENCE

L-

1L. 2 52.233-2 Service of Protest (SEP 2006) L-

1L. 3 52.252-1 Solicitation Provisions Incorporated by Reference (FEB 1998) L-

2L. 4

GENERAL INSTRUCTIONS TO OFFERORS

L-

2L. 5

INSTRUCTIONS FOR THE PREPARATION OF THE TECHNICAL PROPOSAL

L-

5L. 6

INSTRUCTIONS REGARDING KEY PERSONNEL

L-

6L. 7

INSTRUCTIONS FOR THE PREPARATION OF THE COST/BUSINESS PROPOSAL

L-

9L. 8

SMALL BUSINESS PARTICIPATION

L-

1SECTION M - Evaluation Factors for Award M-

1M. 1

GENERAL INFORMATION

M-

1M. 2

EVALUATION CRITERIA

M-

3M. 3

CONTRACTING WITH SMALL BUSINESS CONCERNS AND DISADVANTAGED ENTERPRISES

M-

4M. 4

DETERMINIATION OF COMPETITIVE RANGE

M-

4M. 5

SOURCE SELECTION

M-

SECTION B - Supplies or Services/Prices

B. 1

PURPOSE

The purpose of this contract is: to support pension reform implementation and labor market interventions aimed to assist the Government of Armenia (GOAM), individuals, households, and communities better manage social risks, such as disability, old age, survivors, and unemployment. In addition, it will provide support to the vulnerable employed and jobless individuals (particularly the low-skilled, women, and the disabled), and give greater attention to countering the effects of the global economic crisis. To achieve this, the program will provide technical assistance and support for human and institutional capacity building.

B. 2

CONTRACT TYPE - CPFF COMPLETION

This is a Cost-Plus-Fixed-Fee (CPFF) completion contract. For the consideration set forth below, the Contractor shall provide the deliverables or outputs described in Section F in accordance with the performance standards specified in Section E.

B. 3

ESTIMATED COST, FIXED FEE, AND OBLIGATED AMOUNT

(a) The estimated cost for the performance of the work required hereunder, exclusive of fixed fee, if any, is TBD. The fixed fee, if any, is TBD. The estimated cost plus fixed fee, if any, is TBD.

(b) Within the estimated cost plus fixed fee (if any) specified in paragraph (a) above, the amount currently obligated and available for reimbursement of allowable costs incurred by the Contractor (and payment of fee, if any) for performance hereunder is TBD. The Contractor shall not exceed the aforesaid obligated amount.

(c) Funds obligated hereunder are anticipated to be sufficient through TBD.

B. 4

COST REIMBURSABLE

The U.S. dollar costs allowable shall be limited to reasonable, allocable and necessary costs determined in accordance with FAR 52.216-7, Allowable Cost and Payment, FAR 52.216-8, Fixed Fee, if applicable, and AIDAR 752.7003, Documentation for Payment.

B.5

PRICE SCHEDULE

Total Direct Cost

Total Indirect Cost

Fixed Fee

Total Estimated Cost

B.6

INDIRECT COSTS (DEC 1997)

Pending establishment of revised provisional or final indirect cost rates, allowable indirect costs shall be reimbursed on the basis of the following negotiated provisional or predetermined rates and the appropriate bases:

Description

Rate Base

Type

Period

1/

2/

3/

3/

3/

1/Base of Application:

Type of Rate: Predetermined

Period:

2/Base of Application:

Type of Rate: Predetermined

Period:

3/Base of Application:

Type of Rate: Predetermined

Period:

B.7

CEILING ON INDIRECT COST RATES (DEC 1997)

(1) Reimbursement for indirect costs shall be at the lower of the negotiated final (or predetermined) rates or the following ceiling rates:

Description

Ceiling Rate

(2) The Government will not be obligated to pay any additional amount should the final indirect cost rates exceed the negotiated ceiling rates. If the final indirect cost rates are less than the negotiated ceiling rates, the negotiated rates will be reduced to conform with the lower rates.

(3) This understanding shall not change any monetary ceiling, obligation, or specific cost allowance or disallowance. Any changes in classifying or allocating indirect costs requires the prior written approval of the Agreement Officer.

SECTION C - Description/Specifications

C.1

EXECUTIVE SUMMARY

The social protection challenge for Armenia is to strike the right balance between providing an adequate social safety net and promoting economic growth. To that end, Armenia should strive to develop a competitive labor market that promotes growth as well as fosters affordable public and private systems for individuals to deal with short-term and long-term social risks (sickness, disability, old age, survivors, family/children, and unemployment) that promote equity.

The goals of the USAID Pension and Labor Market (PALM) Reform Program in Armenia are to: support pension reform implementation and labor market interventions aimed to assist individuals, households, and communities better manage social risks or needs, provide support to the vulnerable employed and jobless individuals (particularly the low-skilled, women, and the disabled), and give greater attention to countering the effects of the global economic crisis. To achieve this, the PALM program will provide technical assistance and support for human and institutional capacity building, and will target two key social protection areas:

· Pension reform implementation – build the Government of Armenia (GOAM) institutional and human resource capacity to implement a multi-pillar pension system that will provide an adequate income for its elderly population in an environment that is fiscally sound and sustainable, with reforms to the current pay-as-you-go (PAYG) scheme and the creation of a private retirement savings system; and

· Labor market interventions – help the GOAM and the most vulnerable individuals to mitigate the economic and social consequences of the global economic crisis by assisting the government and the private sector to: 1) give greater attention to countering the effects of the economic downturn which significantly affected the already inefficient Armenian labor market, 2) catalyze new linkages at the local level between the private sector, local authorities, and vocational training institutions to address labor market gaps, and 3) improve the country’s workforce readiness and competitiveness with an integrated economic and social approach.

Armenia has a financially unsustainable pension burden because of the structure of the current system and its aging population. The GOAM is exploring various international solutions to improving its pension system for the same reasons as many other countries: deteriorating system dependency ratio (the share of beneficiaries to contributors), low and inadequate benefits, low retirement ages, high tax evasion, lack of reliable individual records and lack of a strong relationship between contributions and benefits. Gender integration is a particular focus of this project - inadequacy of pensions has a gender dimension that mirrors the gender differences in the labor market. At every age, pensions of men exceed those of women due to men’s higher wage and longer work histories. Both men and women will be included to the greatest extent possible in all aspects of this program’s implementation, including participation in policy dialogue, trainings and other activities.

Recognizing the low level of pensions, the government has increased all retirement benefits by 60% in January 2008 and is planning additional increases in 2010 and 2012. As a result, the public old-age, disability and survivor pension system expenditures have risen from 2.6% of GDP in 2007 to 3.8% of GDP in 2008 and they are expected to reach 4.3% in 2012.

In November 2008, the government adopted a Pension Reform Program that recommended a multi-pillar reform approach to reforming the country’s inadequate and inefficient pension system. The proposed introduction of a funded pillar in 2010, together with the envisaged increases in state-funded pensions, need to be carefully assessed. In particular, the estimates of the pension reform costs can not be based on optimistic assumptions, given that the introduction of the proposed relatively large second pillar with an expansionary PAYG benefits policy is projected to generate rising deficits. Preliminary estimates suggest that the cost of the funded pillar could be relatively small (around 0.4 percent of GDP per year). But plans to raise average pensions ($80/month in 2008) to the level of the minimum consumption basket (MCB), $119 per month in 2008, by 2012 could add up to 1.4 percent of GDP to total annual spending.

USAID also cautions that a new funded pension system will require significant infrastructure and transparency, as well as investments and policies that embrace international standards and best practices. Employers will be required to withhold the unified income tax and the 2nd Pillar contributions and remit these funds to the State Tax Service (SRC). The SRC’s responsibility will also include the collection of personified income and tax data. Thus, the proposed unified income tax collection infrastructure is critical to the establishment of the new pension system. At present, the SRC does not collect income taxes and social insurance contributions on an individualized basis. To do so effectively and efficiently, considerable resources must be allocated to the SRC as it assumes this new and highly important responsibility and to ensure the success of this operation.

Armenia has been one of the fastest-growing transition economies in the past decade. But the robust economic growth has been uneven in the regions and across various economic sectors. For many years Armenia has experienced jobs-less growth. As a result, these signs of recovery have yielded only modest gains for the population in terms of increased employment and earning power.

As the global economic crisis deepens, few countries have been hit as hard as Armenia. In the absence of a countercyclical policy response (fiscal, monetary and infrastructure investments), dramatic increase in the number of unemployed (particularly among Armenia’s migrant laborers), “working poor” , and those in vulnerable employment is under way. A combination of economic decline, higher inflation, and pressures to cut public expenditures will likely result in heightened social pressures and more poverty. Women are especially vulnerable to labor market imbalances and to economic downturn, making up 75% of registered unemployed.

The GOAM is aware that more decisive and coordinated actions are needed to avert a social recession that could lead to political instability. Labor market interventions are necessary to help the government and the most vulnerable individuals mitigate the economic and social consequences of the global economic crisis through skills enhancement programs, improvements in the efficiency of the labor market, and the implementation of active employment measures.

In October 2008, the GOAM approved the Sustainable Development Program (SDP), Armenia’s second Poverty Reduction Strategy Paper (PRSP-2). The SDP has three key goals covering the period 2009–2021 (with specific medium term targets for 2009–2015): reducing poverty to 10.1 percent by 2015, including the reduction of extreme poverty to 1.6 percent by 2015; ensuring human development; and deepening economic growth and accelerating development of lagging regions.

Proposed USAID pension reform and labor market interventions assistance corresponds to the GOAM’s strategic priorities for the country. Thus, the PALM project has been designed to support the goals articulated in the Government's Pension Reform Program and SDP.

PALM is planned to build on the success of more than 15 years of USAID social and humanitarian assistance programs, particularly Armenia Social Transition Project (2000-2005) and Social Protection Systems Strengthening Project (2007-2009). It supports the USAID Objective Investing in People (IIP) , Program Area 3 “Social Services and Protection for Especially Vulnerable Populations” and is consistent with the new USG Country Assistance Strategy for 2009-2013, Priority Goal 5: Enhancing Armenia's health and human services through innovative institution building to assist the Armenian people.

Information on other USAID and international donor projects supporting pension reform and labor market interventions is provided in this RFP to ensure that the Contractor is aware of these activities and of the requirement to collaborate and coordinate with other implementing partners and donor agencies to maximize resources and avoid duplication of efforts. USAID also sees local and international businesses as prime targets for partnership, whether through corporate social responsibility programs or other more targeted alliances. Therefore, the PALM project envisions potential partnerships with the GOAM, local authorities and the private sector in targeted initiatives in a form of public-public or public-private partnerships.

The main GOAM counterparts include the Ministry of Labor and Social Affairs (MLSA) and its agencies - the State Social Security Service (SSSS) and the State Employment Services Agency (SESA), the State Revenue Committee (SRC), the Ministry of Finance, the Ministry of Economy and the Central Bank of Armenia (CBA). Nongovernmental collaborators shall include non-governmental think-tanks, associations, or foundations (NGOs) capable of shaping public policy in Armenia, providing modern expert assessments and analysis of economic and social policy, private sector organizations involved in job placement and skills training, employers associations and trade unions.

C.2

PENSION SYSTEM AND LABOR MARKET OVERVIEW

Pension System Overview and Proposed Reform

The current pension system provides old-age, disability, survivor, privileged and social benefits on a Pay-As-You-Go (PAYG) basis. The pension age for men is 63. The pension age of 62 for women as of January 2009 is increasing by 6 months each year until reaching 63 in 2011.

The current pension formula is based on length of service is not linked to wages. The contribution rate to the public social insurance system is regressive and varies by income. Currently, employees pay 3% of wages and employers pay from 5 to 15% of wages, based on a regressive scale. The agricultural sector, formally half of the economically active population, is by law not required to contribute to the social insurance system. These workers no longer accrue pension service credits and will increasingly receive social pensions only.

In 2008, average monthly wages were 91,539 AMD ($300 at the exchange rate of 305AMD per $1), a 17.4 percent increase over 2007. The minimum monthly wage increased in 2009 by 20% from 25,000 AMD to 30,000AMD ($83 in March 2009). The pace of growth last year was stronger for average wages in the mining industry (32.4%), construction (26.7%), manufacturing (20.3%), and the public sector (18.6%). However, government workers still earn substantially less on average than private sector employees: 65,000 AMD ($213) versus 91,539 AMD ($300) average wages.

In 2008, the average monthly employment-related old-age pension was 24,250AMD or about $80, and the minimum social pension was 6,800AMD ($22). According to the Ministry of Labor and Social Affairs, the poverty threshold for 2009 is set at 25,964 AMD per capita ($69 at 375AMD per $1USD exchange rate) and the extreme poverty threshold for 2009 is 17,225 AMD ($46).

While the current PAYG pension system was in financial balance before 2008, it had problems common to many countries: low and inadequate benefits, low retirement ages, high tax evasion, lack of reliable individual records, and lack of a strong relationship between contributions and benefits. Inadequacy of pensions has a gender dimension that mirrors the gender differences in the labor market. At every age, pensions of men exceed those of women due to men’s higher wage and longer work histories.

The fiscal pressure for pension reform in Armenia is generally not the result of population aging and the associated deterioration in demographic dependency ratios (the share of elderly to working population) but instead is linked to exploding expenditures resulting from deteriorating system dependency ratios (the share of beneficiaries to contributors). According to National Statistical Service, in 2008 Armenia had about 1.2 million of economically active people (labor force), but social insurance contributions were regularly paid by 482,000 workers who supported 522,700 pensioners . Thus, only 75% of the formal non-agricultural sector contributes to the pension system.

In January 2008, pensions were increased by 60% just prior to the 2008 Presidential election and additional increases are projected for 2010 and 2012. Pension expenditures were 2.6% of GDP in 2007. With the 60% sharp pre-election increase, they rise to 3.8% of GDP in 2008, and may reach 4.3% of GDP in 2012. At these rates of increases, the pension system is not sustainable and may become the main cause of the country’s high and rising budgetary deficit. In view of the difficulty of collecting taxes and the current financial crisis, the GOAM may have to freeze increases to the already low budgeted health and education social expenditures.

In an effort to improve the fiscally unsound and unsustainable pension system, the GOAM since 2006 has moved to reform the pension system by exploring a number of reform programs. After much debate and deliberation, the government finally adopted a pension reform program in September 2008. By February 2009, four pension laws to implement the reform were drafted and presented to the government by the Pension Reform Implementation Working Group (PRIWG). If these laws are enacted in 2009, the GOAM plans to launch a multi-pillar pension system in 2010, as outlined in the pension reform framework that will include:

· “0” Pillar - A non-contributory minimum social pension at 80% of the basic pension for those with less than 10 years of insured service required collect a pension from the mandatory pension system.

· 1st Pillar – Mandatory solidarity public pension system based primarily on years of service (minimum 10 years) without a link to wages, funded from the general budget. Employees will pay 26% of wages as income and social contribution taxes, known as the unified tax. The 1st Pillar consists of two parts: 1) a flat basic pension, which is the basis for all other benefits; and 2) an amount reflecting years of contributions prior to the reform.

· 2nd Pillar – Mandatory individual retirement savings (IRS) system (second pillar) financed by contributions of 10% of wages, 5% paid by workers and 5% by the state, up to a ceiling. For those whose years of unified income tax payment are entirely after the effective date of reform, only a flat basic pension will be paid from the pay-as-you-go system.

· 3rd Pillar – Voluntary individual retirement savings system.

Employers will have no pension contribution obligation under the new pension system. They will, however, be required to withhold the unified income tax and the 2nd Pillar contributions and remit these funds to the State Tax Service (SRC). The SRC’s responsibility will also include the collection of personified income and tax data. Thus, the proposed unified income tax collection infrastructure is critical to the establishment of the new pension system. At present, the SRC does not collect income taxes and social insurance contributions on an individualized basis. To do so effectively and efficiently, considerable resources must be allocated to the SRC as it assumes this new and highly important responsibility and to ensure the success of this operation.

IRS accounts will be administered in a Centralized Depository (CDA) and invested by licensed asset managers. Second pillar savings should be transferred to the CDA that will serve as a clearinghouse and storage of individual data, as well as the custodian that transmits workers’ individual account assets to asset managers chosen by the workers. The GOAM has identified NASDAQ-OMX as the appropriate entity to provide the centralized depository service. NASDAQ-OMX purchased the securities exchange of Armenia in 2008 and performs similar functions in several other countries.

Nevertheless, this proposal has significant risks. The January 2010 launch date for Armenia’s new pension system is highly ambitious and may not provide sufficient time to begin such a major reform. However, this early launch date, according to many sources, is preferred as a measure to keep the pension reform moving forward without an unreasonable delay.

There are other challenges for Armenia’s planned pension reform. Capital markets in Armenia are shallow and cannot readily absorb investments, which is why pension and financial experts advise that IRS be invested globally by a limited number of asset managers. There is also a concern that domestic asset managers will be costly.

To make the pension reform successful, further work is needed: parameters must be set so that the reform is fiscally sustainable, resources should be allocated equitably in order to benefit several generations, labor market incentives must be improved, administrative capacity must be strengthened to ensure that operations are adequate, timely, and efficient, and governance structures must be installed to safeguard the pension assets.

Labor Market Developments

In the last decade, Armenia has been one of the fastest-growing transition countries. However, strong GDP growth since 2000 was not enough to avoid a decrease in employment due to systemic and structural barriers. The robust economic growth has been uneven in the regions and across economic sectors, and has yielded only modest gains for the population in terms of increased employment and earning power. Labor market outcomes in Armenia remain among the worst compared to other transition countries - for many years Armenia has actually experienced a “jobs-loss-growth”, with employment declining by one third over the past 15 years.

Since 1991 there was a great shift from stable wages and salaried jobs to casual and less-formal jobs and self-employment. Informal employment and short-term contracts in Armenia have increased, giving workers fewer social protection entitlements and little sense of security in their employment. Frequently cited reasons for the slow pace of formal sector job creation include low labor demand, inadequate and mismatched skills, and social and other tax burdens on business. The duration of unemployment remains extremely high, with nearly two-thirds of the unemployed looking for a job for one year or longer.

Migration flows had a major impact on the dynamics and structure of the population and labor force. According to recent OSCE-funded survey , about 20% of Armenian households were involved in external labor migration during last decade. Migration flows have been mainly to Russia (96% of all labor migrants and 71% of permanent migrants). The survey also recorded that 79% of all migrants (90% of labor migrants and 51% of permanent migrants) were male. High migration of middle-aged males affects Armenia’s demographics and may, in the long run, result in labor shortages. Post fiscal crisis, this possibility may now be tempered.

Limited job opportunities in Armenia have led to discouragement and massive labor force withdrawal. Youth are especially likely to be more affected by negative output shocks. There was a sharp decline of the labor force in the 1990s from 1.6 million in 1990 to 1.2 million in 2008 caused by closures, restructuring, and migration, which leveled off as economic growth picked up and a few jobs were created. According to NSS data, much of the labor force (46.2%) works in agriculture and forestry. Employment rates are higher in rural areas where workers experience poorly paid seasonal, temporary, or occasional jobs. The rest are employed in services (38.2%), industry (12.9%) and construction (2.7%).

As the global economic crisis deepens, few countries have been hit as hard as Armenia. The economic downturn has dramatically increased the number of unemployed workers (particularly for Armenia’s migrant laborers), the “working poor”, and those in vulnerable employment. Economic growth has disappeared in 2009 and Armenia is now in a recession. In the absence of an adequate countercyclical policy response (fiscal, monetary, and infrastructure investments), unemployment can be expected to worsen. Registered unemployment now stands at 10 percent, up from 7 percent for the past 3 years, reflecting mass layoffs and labor migrants return after the onset of the world economic crisis. A combination of economic downturn, higher inflation, and pressures to cut public expenditures will likely result in heightened social pressures and increased poverty.

The global economic downturn seriously threatens the robust poverty reduction that Armenia enjoyed in recent years. According to the World Bank, overall poverty incidence in Armenia could increase by about 5.2 percent between 2008 and 2010 - from 23 percent in 2008 to 28 percent in 2010 affecting about 900,000 people. This assumption is based on a protracted crisis scenario, with the economy contracting by 8 percent in 2009 and by 2 percent in 2010. According to the National Statistical Service (NSS), in 2004 the poverty level in Armenia was 34.6% and 22.7% in 2008 - 22.7%. The increase in extreme poverty and poverty gap could be more pronounced as the already poor become poorer, and the extreme poverty level may increase from 3.2% in 2008 to 8.7% in 2010.

The GOAM is aware that more decisive and coordinated actions are needed to avert a social recession that could lead to political instability. Labor market interventions are necessary to help the government and society’s most vulnerable individuals mitigate the economic and social consequences of this global economic crisis with skills enhancement programs, improvements in the functioning of the labor market, and the implementation of active labor market programs.

The MLSA develops employment policy, allocates SESA’s budget, and designs the National Employment Strategy. The SESA provides the mandated services and programs to Armenia’s registered unemployed. It is the only Government agency tasked to assist job seekers to find employment or to provide a safety net for those most vulnerable to unemployment.

Until 2008, employment services were dominated by passive measures and SESA’s primary programs were job-seekers registration, benefit payments, and temporary public works projects. Today, SESA is beginning to shift to more proactive employment programs, such as job counseling, job fairs, job clubs, etc. Initial steps have been taken to better link the supply side to employer demands. SESA has benefited from training and demonstrations from USAID and other donors and is ready to roll out several active labor market measures. However, considerable in-service training, skills upgrading, and service reorganization will be needed to accomplish this in a meaningful way that truly addresses the needs of the unemployed and employers seeking to match their job needs.

C.3

USAID TECHNICAL ASSISTANCE IN PENSION AND OTHER SOCIAL

PROTECTION REFORMS

USAID programs in social protection remain key assistance tools to build strong US-Armenian cooperation and a stable society that is responsive to the needs of the general population as well as the most vulnerable groups. Social protection programs ensure that the benefits of economic growth and increased government revenues are used effectively to improve social services and assistance to the most vulnerable populations (rural poor, the elderly, families with children, disabled, and young unemployed), thereby protecting and enhancing Armenia’s most important and abundant resource – its human capital.

Prior to 2000, USAID assistance to Armenia’s social protection system emphasized direct humanitarian assistance to alleviate human suffering and widespread poverty. As the humanitarian crisis ended and Armenia’s economy stabilized, USAID’s social sector technical assistance began to focus on sustainable social protection systems and self-reliance. Impressive strides have been made through USAID’s programs in the areas of social insurance, social assistance, and service provision programs for vulnerable populations, training and employment, and public awareness of the Government of Armenia’s social protection systems. USAID’s social protection portfolio includes both micro and macro-level assistance to ensure that vulnerable populations are provided for while the social protection systems are modified, tested, and introduced.

Major accomplishments attributed to USAID’s assistance in the social sector during 2000-2005 include:

· Introduction of social security cards that assign a unique number for each individual with the intention of improving the quality of social services, simplifying procedures for eligibility and claims processing, and reducing corruption.

· Improved targeting of family benefits to the most vulnerable.

· Development and introduction of the Personal Account Registration, Numbering and Analysis System (PARNAS) that enables the social security system to track all contributions paid by and on behalf of individuals in the state pension system (State Social Security Services).

· Support of many community-based public works projects under USAID/Armenia’s three previous five-year Strategic Plans. These activities targeted renovation of local infrastructure used by vulnerable people, and included orphanages, nursing homes, hospitals, kindergartens, community centers and schools for the handicapped throughout Armenia. Public works programs were largely intended as short-term income and employment generation opportunities for the unemployed and unskilled engaging communities in the development process (this assistance will continue through 2009).

· Food and social services provided daily to 8,000 vulnerable elderly individuals in 6 marzes throughout Armenia (this assistance is also continuing through January 2011).

In 2006-2009, USAID has focused on macro-level reforms through the Social Protection Systems Strengthening Project (SPSS), including the design and implementation of the pension reform program, and improving policy, regulatory, and administrative systems that guide the delivery of social assistance to vulnerable populations and social services for all citizens in need. The goals of the SPSS project are to improve the social protection systems in Armenia and, at the same time, increase opportunities for self-reliance and reduce citizens’ dependence on public support to meet basic needs. SPSS targets four key social protection areas: (a) social insurance, including pension reform support; (b) employment services development; (c) occupational safety and labor regulations; and (d) social assistance programs for vulnerable populations (www.spss.am).

Through its BRIDGE public works program, USAID supports the most vulnerable unemployed members of communities in targeted regions of Armenia in basic and skilled construction techniques and provides them with short-term employment in renovating community infrastructure (http://www.bridgearmenia.am).

Major accomplishments attributed to USAID’s technical assistance in the social protection area in 2006-2009 include:

· GOAM Pension Reform White Paper adopted (September 2008) and detailed reform implementation plan developed (January 2009). Pension modeling capacity developed to forecast the effects of the various reform proposals. Four pension reform laws drafted, adopted by GOAM and submitted to the National Assembly - on PAYG Pension System Reform, on Unified Income Tax, on Personified Recordkeeping, and on Funded Pension System.

· National Employment Strategy developed and active labor market measures adopted. Labor market forecasting and services for youth and vulnerable groups improved.

· Business process analysis and ICT systems development planning provided to the State Social Security Service and to the State Revenue Committee’s income tax division.

· Occupational safety standards adopted for mining, gas handling, and explosives. Automated State Labor Inspection database and risk-based enforcement introduced.

· Social services contracting/outsourcing procedures introduced for especially vulnerable populations, based on international best practices. GOAM took the budgetary and administrative steps to institutionalize the social contracting to local NGOs.

The primary goal of USAID Financial Sector Deepening (FSD) project (http://www.fsdp.am) in the pension reform area is to support work in the development of a mandatory IRS system (2nd Pillar) and a voluntary IRS system (3rd Pillar). This work is also supporting reform of pay-as-you-go 1st Pillar and the SPSS project goals. In 2007-2008, the FSD project has supported pension reform through active participation in working groups, two international pension study tours, a feasibility study on currency hedging prospects for the planned 2nd Pillar II, and provided assistance on the development of a collective investment scheme law. In addition, it has supported the GOAM in its arrangements with NASDAQ OMX. FSD project will continue providing technical assistance through September 2009 with respect to issues addressing asset management, investments, and in particular, licensing of asset managers for the 2nd Pillar in order to ensure that these processes are consistent with overall regulation of the financial investment sector. Other FSD work included assistance provided for secondary mortgage market development, insurance, and creation of long-term sources of finance, all of which have been shown in other countries to be critical for successful pension system overhaul.

All programs aim to encourage the role of the private sector (non-governmental and for profit) in services delivery and the increase the capacity and efficiency of the GOAM.

C.4 Relationship to the Country ASSISTANCE Strategy

The proposed technical assistance in pension reform implementation and labor markets interventions builds on the success of more than 15 years of USAID social and humanitarian assistance programs to Armenia. It supports the USAID Objective Investing in People (IIP), Program Area “Social Services and Protection for Especially Vulnerable Populations” and is consistent with the new USG Country Assistance Strategy for 2009-2013, Priority Goal 5: Enhancing Armenia's health and human services through innovative institution building to assist the Armenian people.

Specifically, the USG will support pension reform implementation to ensure that adequate benefits are fiscally sustainable and will work to improve social assistance benefits and services to the most vulnerable. USAID also sees local and international businesses as prime targets for partnership, whether through corporate social responsibility programs or other more targeted alliances. Therefore, USAID will work with the GOAM, local authorities and the private sector in targeted initiatives to enhance labor markets and to increase public-private partnerships in social services provision.

Pension and Labor Market reform project activities correspond to strategic priorities of the country and the government. PALM has been designed to support the goals articulated in the Government's Pension Reform Program and the Sustainable Development Program. Finally, the current pension system and labor market outcomes are significant impediments to business development, foreign investment, and SME growth. Therefore, the Mission believes that helping the GOAM remove these impediments is one of the highest priority areas for intervention.

Gender integration is a particular focus of this project. Women are especially vulnerable to labor market imbalances and to economic downturn making up 75% of registered unemployed. Inadequacy of pensions also has a gender dimension that mirrors the gender differences in the labor market. In Armenia 62% of pensioners are women. They usually are younger and tend to become widows more often than male. At every age, pensions of men exceed those of women due to men’s higher wages and longer work histories. Both men and women will be included to the greatest extent possible in all aspects of this program’s implementation, including participation in policy dialogue, working groups, training and other activities.

C.5

STATEMENT OF WORK

5. A. Overall Program Objectives

The goals of the USAID Pension and Labor Market (PALM) Reform Program in Armenia are to: support pension reform implementation and labor market interventions aimed to assist individuals, households, and communities better manage social risks or needs, provide support to the vulnerable employed and jobless individuals (particularly the low-skilled, women, and the disabled), and give greater attention to countering the effects of the global economic crisis.

To achieve this, the PALM program will provide technical assistance and support for human and institutional capacity building, and will target two key social protection areas:

· Pension reform implementation – build the Government of Armenia (GOAM) institutional and human resource capacity to implement a multi-pillar pension system that will provide an adequate income for its elderly population in an environment that is fiscally sound and sustainable, with reformed current pay-as-you-go (PAYG) scheme and the newly created private retirement savings system; and

· Labor market interventions – help the GOAM and the most vulnerable individuals to mitigate the economic and social consequences of the global economic crisis by assisting the government and the private sector to: 1) give greater attention to countering the effects of the economic downturn which significantly affected the already inefficient Armenian labor market, 2) catalyze new linkages at the local level between the private sector, local authorities, and vocational training institutions to address labor market gaps, and 3) improve the country’s workforce readiness and competitiveness with an integrated economic and social approach.

By the end of the PALM project, the Contractor shall have increased the capacity of the GOAM, local authorities, and other key stakeholders, as appropriate, to: (a) implement, administer, and further refine a new multi-pillar pension system that provides adequate retirement income in a fiscally affordable and sustainable way; (b) create pension reform developmental effects by minimizing negative impacts (e.g. labor market) and leveraging on positive impacts (e.g. financial market development); (c) prepare adequate labor market policy responses, develop contingency plans and targeted interventions needed to counter the effects of the economic downturn and to address labor market gaps; (d) increase the employability of the workforce and support the vulnerable unemployed and workers (particularly low-skilled workers, labor migrants who lost their jobs, women, and people with disabilities).

USAID PALM program will, in essence, be continuing support for Armenia’s overall economic and social protection reforms, designed to support the goals articulated in the Government's Sustainable Development Program (SDP), Armenia’s second Poverty Reduction Strategy Paper (PRSP-2). The SDP has three key goals covering the period 2009–2021 (with specific medium term targets for 2009–2015): reducing poverty to 10.1 percent by 2015, including the reduction of extreme poverty to 1.6 percent by 2015; ensuring human capital development; and deepening economic growth and accelerating development in lagging regions.

The project is a three-year activity aimed at assisting the Government of Armenia to support pension reform implementation and labor market interventions, and to give greater attention to countering the effects of the global financial and economic crises with an integrated economic and social approach.

The Contractor shall take advantage of opportunities for synergy and linkages among the program components. Anticipated tasks and services to be accomplished by the Contractor shall include technical assistance to GOAM and other counterparts for, but not limited to:

· Addressing institutional and human resource capacity building needs necessary to develop, implement, and administer modern social protection system

· Developing and implementing pension and labor market policy actions, using leading-edge analyses and providing timely and appropriate responses

· Addressing consequences of global economic and jobs crisis by combining emergency action with the important structural reforms and support to innocent victims of the crisis (e.g. stimulus package for wider coverage of unemployment benefits and insurance schemes, public investment in infrastructure and housing, SME support, etc.)

· Applying modern information and communications technology (ICT) solutions

· Building political commitment and ownership by linking project activities to strategic priorities of the country and the government

· Raising public awareness, public education and information

This project places great emphasis on strengthening the GOAM’s pension and labor market policy analyses, response, administrative, and data gathering capabilities. PALM program monitoring, evaluation, coordination, and reporting are key to this activity’s success. As such, the Contractor shall develop performance monitoring and implementation schedules that are realistic but also flexible enough to allow for the efficient execution of this project.

5. B. Program Components The Contractor shall provide technical assistance and material support for the two PALM components that cover (1) pension reform implementation, and (2) labor market interventions. The following sections describe in greater detail USAID requirements for the PALM project components. Each sub-section is organized as outlined below:

· Name of Component

· Component Objectives

· Expected Results 5.B.1. Component 1: Pension Reform Implementation

In an effort to improve the fiscally unsound and unsustainable pension system, the GOAM since 2006 has moved to reform the pension system by exploring a number of reform programs. After much debate and deliberation, the government finally adopted a pension reform program in September 2008.