Revised_RFP_SOL-263-17-000012_Amend_03.pdf

Date Issued: September 29, 2017 Deadline for Questions: October 12, 2017 (3:00pm Local Time in Egypt) Closing Date: November 2 November 7, 2017 (3:00pm Local Time in Egypt) Subject: Request for Proposals (RFP) No.: SOL-263-17-000012 USAID/Egypt – Macro-Economic Stabilization Reform (MESR) activity

The United States Government, represented by the U.S. Agency for International Development (USAID)/Egypt, intends to award a five-year contract to support the Government of Egypt in upgrading Public Financial Management and improving public investment planning, management, implementation, and monitoring through the Macro-Economic Stabilization Reform activity. The estimated cost range for this procurement is $23-24.8 Million, subject to availability of funds.

All interested and qualified organizations are invited to submit a proposal in accordance with the requirements of the enclosed RFP No.: SOL-263-17-000012. This procurement will be conducted under full and open competition procedures, pursuant to Part 15 of the Federal Acquisition Regulation (FAR) (48 CFR Chapter 1). If your organization decides to submit a proposal in response to this solicitation, it must be submitted in accordance with Section L of this RFP. Proposals received after the closing date and time will be processed as late and handled in accordance with FAR 15.208.

If substantive questions are received, which affect the response to the solicitation, or if changes are made to the closing date and time, as well as any other aspects of the RFP, this solicitation will be amended. Any amendments to this solicitation will be issued and posted on the Federal Business Opportunities (FedBizOpps) website. Offerors are encouraged to check http://www.fbo.gov periodically. Issuance of this solicitation does not obligate USAID to award a contract, nor does it commit USAID to pay for costs incurred in the preparation and submission of a proposal. Furthermore, USAID reserves the right to reject any and all offers, if such action is considered to be in the best interest of the U.S. Government.

Offerors should read the entire solicitation, which includes all pertinent technical sections and the terms, conditions and instructions required for submitting a proposal. By email only, please submit all questions regarding this RFP no later than October 10 12, 2017, at 3:00 PM (Egypt time) to Ms. Sherry Biblawy at sbiblawy@usaid.gov and MESR@usaid.gov . Oral instructions or explanations given before the award of the contract resulting from this solicitation will not be binding. Answers to all offerors’ questions will be provided in writing. Thank you for your interest in USAID programs.

Sincerely, /s/

J. Zeb Simpson Contracting Officer http://www.fbo.gov/ mailto:sbiblawy@usaid.gov mailto:MESR@usaid.gov

SOL-263-17-000012

ABBREVIATIONS

AAPD Acquisition & Assistance Policy Directive ADS Automated Directives System AIDAR Agency for International Development Acquisition Regulation CCN Cooperating Country National CAS Cost Accounting Standards CBE Central Bank of Egypt CCR Central Contractor Registration CFR Code of Federal Regulation CO Contracting Officer COP Chief of Party COR Contracting Officer’s Representative CPAR Contractor Performance Assessment Reporting CPARs Contractor Performance Assessment Reporting System CPFF Cost-Plus-Fixed-Fee CPI Consumer Price Index CPII Contractor Performance and Integrity Information D&B Dun and Bradstreet, Inc DBA Defense Base Act DCOP Deputy Chief of Party DDL Development Data Library DEC Development Experience Clearinghouse DO Development Objective DUNS Data Universal Numbering System ECP Egypt Competitiveness Project EFF Extended Fund Facility EIU Economist Intelligence Unit EIT Electronic and Information Technology ER Environmental Review ERF Environmental Review Form E.O. Executive Order EFT Electronic Funds Transfer FAPIIS Federal Awardee Performance and Integrity Information System FAR Federal Acquisition Regulation FBO FedBizOpps – Federal Business Opportunities FDI Foreign Direct Investment GAO General Accounting Office GD Growth Diagnostic GDP Gross Domestic Product GFMIS Government Financial Management Information System GFP Government Furnished Property GOE Government of Egypt HSPD-12 Homeland Security Presidential Directive-12 IDIQ Indefinite Delivery Indefinite Quantity IPN Implementing Partner Notices

IVL Interested Vendor List IR Intermediate Results IEE Initial Environmental Examination IMF International Monetary Fund IT Information Technology KPI Key Performance Indicator LPFM II Leadership in Public Financial Management II M&E Monitoring & Evaluation M/IRM Office of Information Resource Management MEDEVAC Medical Evacuation MENA Middle East and North Africa MESR Macroeconomic Stabilization and Reform MOF Ministry of Finance MOP Ministry of Planning MSMEs Micro, Small, and Medium-sized Enterprises SMEs Small and Medium-sized Enterprises MSEs Micro and small-sized enterprises/entrepreneurs NAICS North American Industry Classification System NGOs Non-Governmental Organizations (NGOs) OAA Office of Acquisition and Assistance OCI Organization Conflict of Interest OFAC Office of Foreign Assets Control OMB Office of Management and Budget ORCA Online Representations and Certifications Application PDF Portable Document Format PFM Public Financial Management PIV Personal Identity Verification PMP Performance Monitoring Plan PPP Public Private Partnership QIZ Qualified Industrial Zones REQ Requisition RFP Request for Proposals SAM System for Award Management SDN Specially Designated Nationals SDS Sustainable Development Strategy PWS Performance Work Statement SOO Statement of Objectives TAPR II Technical Assistance for Policy Reform II TIN Taxpayer Identification Number TIPE Trade and Investment Promotion in Egypt TCN Third Country National USAID United States Agency for International Development USAID/W USAID Washington USG United States Government VAT Value Added Tax

PART I – The Schedule

SECTION B – SUPPLIES OR SERVICES AND PRICE/COSTS

B.1 PURPOSE

The United States Government (USG) represented by the U.S. Agency for International Development (USAID)/Egypt, seeks to develop and implement a program to support the Government of Egypt (GOE) reform efforts included in the GOE agreement with the International Monetary Fund (IMF). These reforms address the macroeconomic imbalances that impacted negatively on the ability of enterprises to grow and become more competitive. More specifically, the purpose of the Macro-economic Stabilization & Reform (MESR) Activity is to support the GOE in : 1) implementing the fiscal consolidation component of the reform plan through upgrading Public Financial Management (PFM) to address the root source of Egypt’s macroeconomic imbalances and instability and 2) improving public investment planning, management, implementation, and monitoring to enhance the productivity of public capital assets and the efficiency and effectiveness of public services.

B.2 CONTRACT TYPE

This is a Cost-Plus-Fixed-Fee (CPFF) Completion-type contract. For the consideration set forth below, the Contractor must achieve the performance objectives and deliverables or outputs described or proposed in Sections C, D, and F in accordance with all applicable performance standards specified herein.

B.3 ESTIMATED COST, FIXED FEE, AND OBLIGATED AMOUNT

(a) The estimated cost for the performance of the work required hereunder, exclusive of fee is: $TBD. The fixed fee is $TBD. The estimated cost plus fixed fee 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, and in accordance with Section B.5 below for performance hereunder is $TBD. The Contractor must not exceed the aforesaid obligated amount in accordance with Federal Acquisition Regulation (“FAR”) 52.232.22, “Limitation of Funds.”

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

*NOTE: The actual amount to be obligated will be determined at the time of award.

B.4 BUDGET

(a) The budget below is based on the contractor’s original proposal or final revised proposal which was accepted by USAID through award of this contract.

(b) The total cost stated for the budget categories specified below may not be adjusted without a modification to the contract signed by the Contracting Officer. No amounts in excess of the amounts specified for each category will be billed to the Contract.

Cost Category BUDGET Personnel TBD Fringe Benefits TBD Travel TBD Equipment TBD Supplies TBD Contractual TBD Other Direct Costs TBD Indirect Costs TBD Award Fixed Fee TBD Total Estimated Cost Plus Fixed Fee TBD

(c) The inclusion of any costs in the above cost categories does not eliminate the requirement for prior approval by the Contracting Officer of cost items designated as requiring prior approval by any of the terms and conditions of this contract, including the applicable cost principles (see FAR 52.216-7, “Allowable Cost and Payment”); nor, does it constitute a determination of allowability by the Contracting Officer of any item of cost, unless specifically stated elsewhere in this contract.

(d) The Contractor agrees to furnish data that the Contracting Officer may request on costs expended or accrued under this contract.

(e) Without the prior written approval of the Contracting Officer, the Contractor must not exceed the total estimated cost set forth in the budget or the total obligated amount, whichever is less.

B.5 FIXED FEE SCHEDULE

Payment of fixed fee will be in accordance with FAR 52.216-8.

(a) The Contractor’s fixed fee is tied to the accomplishment of the performance objectives and deliverables or outputs described in Sections C, D and F, as well as complying with all contract requirements. The Contractor will be paid the proportion of the fixed fee that corresponds to the proportion of cost incurred by the Contractor during the period covered by the invoice.

(b) In accordance with FAR clause 52.216-8 “Fixed Fee -”, USAID reserves the right to withhold a reserve not to exceed 15% of the total fixed fee or $100,000 whichever is less, to protect the Government’s interest. The Contracting Officer shall release 75% of all fee withholds under this contract after receipt of an adequate certified final indirect cost rate proposal covering the year of physical completion of this contract, provided the Contractor has satisfied all other contract terms and conditions, including the submission of the final patent and royalty reports, and is not delinquent in submitting final vouchers on prior years’ settlements. The Contracting Officer may release up to 90% of the fee withholds under this contract based on the Contractor’s past performance related to the submission and settlement of final indirect cost rate proposals.

B.6 INDIRECT COSTS

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* Period** Rate Base***

* Description or type of rate indicated as a percentage, e.g., G&A ** Period, e.g., CY 2009 *** Base, e.g., Direct Labor for Labor Overhead

[RATES WILL BE INSERTED AT THE TIME OF AWARD]

B.7 ADVANCE UNDERSTANDINGS ON CEILING INDIRECT COST RATES AND

FINAL REIMBURSEMENT FOR INDIRECT COSTS

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

Description Period Ceiling Rate Base

(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 costs are less than the negotiated ceiling rates, the negotiated rates will be reduced to conform to the lower rates.

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

(4) It is USAID policy that contractors or grantees that agree to an indirect cost rate ceiling that is less than the government-wide NICRA rate in a contract shall not recoup the amounts occasioned by the reduction in the rates on other agreements with the U.S.

Government. Therefore, the organization must agree in writing not to recoup the reduction in the rates on other contracts or grants with the U.S. Government - the reduction must be taken from profit, fee or other non-governmental sources of revenues. In any instance where an indirect cost rate other than that specified in the NICRA is to be used in a contract or grant the contractor/grantee is required to acknowledge the above stipulations by providing a written acknowledgement to

USAID.

B.8 COST REIMBURSMENT

Allowable costs will be limited to reasonable, allocable and necessary costs determined in accordance with FAR 52.216-7, Allowable Cost and Payment (JUN 2013), FAR 52.216-8, Fixed Fee, if applicable, and AIDAR 752.7003, Documentation for Payment.

B.9 MULTI-YEAR CONTRACT AND CANCELLATION CEILING

This contract is subject to the requirements of FAR 17.106.

(a) Performance under this contract during the second and subsequent program years is contingent upon the appropriation of funds. All program years except the first are subject to cancellation. Cancellation shall occur by the dates specified below if the Contracting Officer:

1. Notifies the Contractor that funds are not available for contract performance for any subsequent program year, or

2. Fails to notify the Contractor that funds are available for performance of the succeeding program year.

(b) Cancellation Ceiling:

In the event that the Government cancels requirements for services in subsequent program years under this contract, the following conditions will apply.

(a) If cancellation under the clause at 52.217-2, “Cancellation Under Multi-year Contracts” occurs, the contractor will be paid a cancellation charge not over the cancellation ceiling defined as follows:

Program Year

Cancellation Date Cancellation Ceiling

1 March 30, 2019 $ 2 March 30, 2020 $ 3 March 30, 2021 $ 4 March 30, 2022 $ 5 March 30, 2023 $ Total $

The Government’s liability for cancellation charges shall not exceed $____. This amount will be reduced accordance with FAR 17.106-1 (c) (1) at the conclusion of each program year as follows:

The cancellation ceiling shall be the amount allotted to this contract under the Limitation of Funds clause (FAR 52.232-22(b)) at the time the cancellation notice is issued by the Contracting Officer.

(d) In accordance with the Cancellation under Multi-year Contracts clause, the cancellation charge will cover only:

(1) Costs-

(i) Incurred by the contractor and/or subcontractor;

(ii) Reasonably necessary for performance of the contract; and

(iii) That would have been equitably amortized over the entire multi-year contract period but, because of the cancellation, are not so amortized; and

(2) A reasonable profit or fee on the costs.

This is a CPFF type contract where the contractor is authorized to be reimbursed for all costs which are allowable in accordance with FAR 52.216-7, "Allowable Costs and Payment".

Therefore, the contractor will not incur any costs which would have been amortized over the life of the contract should the contract be cancelled in accordance with FAR 52.217-2.

[END OF SECTION B]

SECTION C - DESCRIPTION/SPECIFICATIONS/ STATEMENT OF OBJECTIVES

C.1 PURPOSE

The resulting contract will form a part of the Trade and Investment Promotion in Egypt (TIPE) project and will focus on supporting the Government of Egypt (GOE) reform efforts included in the GOE agreement with the International Monetary Fund (IMF). These reforms address the macroeconomic imbalances that impacted negatively on the ability of enterprises to grow and become more competitive. More specifically, the purpose of the Macro-economic Stabilization & Reform (MESR) Activity is to support the GOE in : 1) implementing the fiscal consolidation component of the reform plan through upgrading Public Financial Management (PFM) to address the root source of Egypt’s macroeconomic imbalances and instability and 2) improving public investment planning, management, implementation, and monitoring to enhance the productivity of public capital assets and the efficiency and effectiveness of public services.

C.2 SCOPE

The resulting contract will provide technical assistance, capacity building, and training to relevant stakeholders and counterparts in order to promote macroeconomic stability by improving the process of capital expenditure planning, control and monitoring; upgrading the effectiveness of public financial management; and developing skills for expanding public private dialogue to promote better policy and regulatory reforms addressing macroeconomic imbalances. Stakeholders and counterparts include the Ministry of Finance (MOF), the Ministry of Planning (MOP), business associations, other private sector representatives, as well as other GOE agencies and international organizations working in the area of macroeconomic stabilization. The contractor must collaborate with other development partners (donors) and other USAID contractors to achieve results. Support will also be provided in the form of IT technical assistance to evaluate the current Government Financial Management Information System (GFMIS) and provide recommendations to: a) address any shortcomings/gaps in the system and b) support the full implementation of the GFMIS. Staff training on the implementation of the GFMIS will be also required.

C.3 BACKGROUND

USAID/Egypt initiated the TIPE project to work toward the development objective:

“Rapid, Inclusive, and Sustainable Economic Growth” for Egypt, and will be achieved through Micro, Small, and Medium-sized Enterprise (MSME) growth. The goal of the TIPE project is to promote inclusive economic growth and improve the competitiveness of the private sector in Egypt through the development of MSMEs, entrepreneurship, and workforce skills. The TIPE project is expected to create new jobs and generate additional income for Egyptian small business owners, laborers, and entrepreneurs, especially women and youth. Youth is defined for the purpose of this activity as individuals who are between ages of 15 and 29 years old.

The TIPE project has three sub-purposes: (1) “MSME Development and Entrepreneurship Supported;” (2) “Technical Education and Vocational Training and Workforce Development Improved;” and (3) “Macroeconomic foundations for growth improved”.

The MESR Contract will focus its technical assistance and training activities on sub-purpose (3) by improving public financial management and public investment planning, management, implementation, and monitoring.

PROBLEM STATEMENT

The Growth Diagnostic (GD) Study undertaken by USAID in 2014/15 identified the root cause of impediments to investment and a competitive and inclusive Egyptian economy in the area of economic governance (Executive Summary of the Growth Diagnostic Study is attached as Annex1). Specifically, economic governance at the macroeconomic policy and microeconomic regulatory levels created instability and distortions that resulted in an accumulation of risk and a toxic enabling environment that weakened the private sector’s incentive to form new enterprises and innovate to grow existing enterprises through improvements in productivity. It is a dynamic and strong private sector, however, that Egypt needs to accelerate inclusive economic growth.

Macroeconomic policies such as the unsustainable food and fuel subsidies and support on the currency produced imbalances that had strong negative impact on the growth of the economy, MSMEs’ competitiveness, and the ability to trickle down the benefits of growth.

At the center of Egypt’s macroeconomic imbalance is its growing budget deficit and accumulating debt that is producing strong inflationary pressure on the economy. Egypt’s inflation rate has been at double digit rates in the last five years, ranking at the top 10% in the world.1 The primary direct impact of high inflation on growth is increasing the risk faced by investors of not being able to retain the full benefits of their investments. In particular, the potential loss of economic value from inflation and further currency depreciation increases the downside risk of private returns and creates a significant drag on investment growth in Egypt. In addition, the existence of government assistance such as the energy subsidy creates opportunities for costly rent-seeking by enterprises and the bureaucracy that implements those subsidies, thereby limiting opportunities for competition. The end result is an economy characterized by small firms that are unable to grow and thrive, on the one hand, and big firms surviving primarily on rent-seeking, on the other, with the middle firms- that are the most capable of innovating, creating jobs, and increasing output- missing from the business landscape.

With 79% of total government expenditure in direct food and fuel subsidy, debt servicing, and public employee compensation, there is little fiscal space (21%) for capital and other types of expenditures that would increase productivity and stimulate long-term growth prospects.2 This has been reflected in the poor quality of public services and the rising poverty rates from 16.7% in 2000 to 27.8% in 2015.3 Currency overvaluation has been another important limiting factor to the growth of firms, especially those that are exporting

1 http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG 2 Ministry of Finance (MOF). Revenue and Expenditure, 2016 3 Central Agency for Public Mobilization And Statistics, 2016 http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG to the international market. With double digit inflation and GOE controls restricting full adjustment of the nominal exchange rate, Egypt’s currency artificially gained value over the US dollar, adversely impacting the competitiveness of the tradable sector of the economy. A recent report by the IMF estimates an overvaluation of the currency by 3% to 28%. At this rate of overvaluation, any price advantage (e.g., 3%) granted from duty free agreements with trading partners, such as the Qualified Industrial Zones (QIZ) with the US, cannot improve Egypt’s competitiveness in these markets. Further, an overvalued currency signaled that foreign exchange may not be readily available to repatriate profits to home countries. This eventuality discouraged foreign investors, curtailed inflow of foreign direct investment (FDI), and limited a potential source of improved technology and productivity, compromising the growth potential of Egypt.

As Egypt continued on supporting its overvalued currency, its international reserves dwindled from a high of $34 billion in 2011 to a precariously low level of $15 billion in early 2016.4 At this level, Egypt could barely afford to cover its 3-month import bill; and with revenues from tourism and the Suez Canal, and remittances from workers abroad still down, Egypt would be short in meeting maturing dollar denominated loan obligations.

Egypt tried to slowdown this financial hemorrhage by rationing hard currency and by erecting higher trade restrictions, but achieved counterproductive outcomes. Instead, the acute shortage of hard currency tightened and created unnecessary supply bottlenecks, which further deepened the trade deficit and fueled higher inflation. Faced with increasing likelihood of bankruptcy and massive economic interruptions in the near horizon, Egypt began to introduce some reforms, and then negotiated with the International Monetary Fund (IMF) for a $12 billion loan package, in order to implement a more comprehensive economic reform program to stabilize and grow the economy. As an initial installment of this reform program, Egypt floated the Pound on November 3, 2016, ended the CBE’s regular auction of hard currency, and established an interbank foreign exchange trading system to allow supply and demand factors to determine market exchange rates. Since then, the Pound lost value with the exchange rate (EGP/$) increasing by more than 100%, and inflation spiked to a record-high of 32.95% (12 month percent change) in July 2017.5 To date, the reform program attracted more foreign direct and portfolio investment, and increased merchandise exports. However, the macroeconomic imbalances such as the fiscal deficit, public debt, and trade deficit remain large and still encumber the economy;

and, although Egypt’s international reserve have increased substantially – to 36 billion in July, much of the reserves are borrowed and will have to be paid in a later date. The adjustment in the value of the Pound after the float positioned Egyptian assets and products to be more competitive in the world market. However, it must be complemented with the other planned reforms, specifically on fiscal consolidation to stabilize the macro economy, and structural reform to improve the ease of doing business in Egypt, in order to incentivize enterprise formation and growth that will translate these reforms into job creation and economic growth outcomes that benefit all Egyptians. These elements are now an essential component of the GOE reform agenda that was supported by the IMF.

Prior and Current Activities

4 Central Bank of Egypt (CBE). International Reserves, 2016 5 Central Bank of Egypt (CBE). Exchange Rate and Consumer Price Index, 2016

Two prior activities predate and inform the development of the MESR activity. Final reports for those two activities are available on the USAID Development Experience Clearinghouse (DEC).

Egypt Competitiveness Project (ECP)-October 2010 - June 2014.

The ECP supported comprehensive regulatory reform by supporting the development of a more transparent and business friendly regulatory environment, specifically in commercial law, fiscal decentralization, and budget transparency. Specific tasks related to fiscal policy included:

• Conducting a policy and economic impact analysis of the property, income, and sales tax systems and their administration and recommending options for improving and modernizing the various tax systems.

• Conducting education and public awareness seminars on tax policy and administration.

• Drafting a general approach to introduce VAT and develop an implementation plan

• Conducting an assessment of the previous 2008 Real Property Tax Law, and drafting a revised law for the MOF.

Technical Assistance for Policy Reform II (TAPR II) – October 2005 – October 2010

TAPR II activities/achievements related to the scope of MESR included the following:

• Assisting in the creation of taxpayer service units in all district offices as well as the dissemination of material to allow taxpayers to comply more easily with their obligations under the new Income Tax Law of 2005

• Assisting in the development of internal operating procedures to ensure consistent and efficient handling and processing of tax returns through a new automated system

• Designing and implementing an automated audit selection system

• Assisting in the reform of the Stamp Tax Regime

• Supporting the tax policy agenda and modernization of the tax administration, the implementation of the Treasury Single Account, drafting a Public Financial Accountability Law, and developing a strategy for public financial management reform

• Supporting the establishment of the Private Public Partnership (PPP) Central Unit

• Drafting a new Pension Law

Washington-based IDIQ: Leadership in Public Financial Management (LPFM II)

USAID/Egypt procured short-term consultancy services to deliver immediate assistance to the MOF on the following areas: a) Treasury Single Account, b) Program-based Budgeting, and c) Revenue Forecasting. The technical instruction of this short-term consultancy is attached as Annex 2 in this RFP.

C.4 STATEMENT OF OBJECTIVES

The resulting contract must assist the GOE in improving public investment management, planning, and monitoring to enhance the productivity of public assets and upgrade GOE services provided to enterprises. It must also support the GOE in upgrading the effectiveness of Public Financial Management to improve fiscal management, budgeting and expenditure control, and promote greater budget efficiency, transparency, and accountability, thereby enabling increased spending on public services and the soft (education and health) and physical infrastructure required for enterprise growth.

At the end of the MESR activity the Contractor must have empowered the GOE with highly trained staff who are enabled to improve the efficiency and effectiveness of the GOE capital investment projects and implement enhanced public financial management systems, procedures, processes, and tools, so that the GOE can achieve its macroeconomic targets, including increasing tax collection, controlling public expenditures, reducing fiscal deficit, slowing down the accumulation of public debt, and building international reserves.

This will be achieved through technical assistance, capacity building, and training to relevant stakeholders and counterparts, including the Ministry of Planning (MOP), the Ministry of Finance (MOF), and other relevant line ministry staff and establishing public private dialogue to promote better policy and regulatory reforms addressing macroeconomic imbalances. Whenever possible, the Contractor will collaborate with other development partners to ensure complementarity of the activities and avoid any potential duplication of efforts.

Objective 1: Improved public investment planning, implementation, and monitoring to enhance the productivity of public capital assets and the efficiency and effectiveness of public services.

In the last seven years, Egypt spent an average of 79% of total government budget on direct food and fuel subsidy (representing 29%), debt servicing of loans (25%), and public employee compensation (25%), leaving very little fiscal space (21%) for capital and other types of investments that would increase productivity and stimulate long-term growth. Not only are public capital investments insufficient, they are inefficient, with significant public resources wasted due to poor management. Anecdotal evidence is replete with examples of ministries leaving public assets (e.g., public offices and hospitals) in serious disrepair due to inadequate allocation of maintenance and operation budgets; and with lack of monitoring system in place, the same ministries request for more capital investments in succeeding budget cycles.

To achieve this objective, the Contractor must assist the Ministry of Planning (MOP) in the design and implementation of a government-wide public investment management system including capital investment appraisal, monitoring and evaluation, and project funding, to improve the efficiency and effectiveness of the GOE capital investment and the public business and citizen services derived from them. This system must: a) strengthen the capital investment appraisal and decision support mechanisms at the MOP and across all GOE entities with standardized cost and benefit valuation methods; b) develop suitable alternative financing schemes; c) improve process flows related to public investment management and finance – from capital investment initiation, planning, formulation, appraisal, funding, monitoring, and evaluation; d) upgrade the existing monitoring and evaluation system at the MOP to ensure that all capital investments are linked to the SDS 2030 goals and objectives, their performance is monitored, and that maintenance and operation budgets are allocated for them; and e) identify opportunities of coordination between the MOP and the MOF in the area of budget formulation, planning and execution, and recommend the best tools for such coordination. The Contractor must build the capacity of the relevant staff at the MOP as well as key line ministries to ensure that public servants directly or indirectly involved in public investment management, capital investment appraisal, and monitoring and evaluation, are capacitated to operationalize the system in the most efficient and effective manner and use it to make informed decisions related to capital investment.

Objective 2: Upgraded effectiveness of Public Financial Management to improve fiscal management, budgeting and expenditure control, and promote greater budget efficiency, transparency, and accountability. 6

Result 2.1: Improved cash management and to support fiscal consolidation

Egypt’s economic instability can be largely traced to its excessive deficit spending, and the resulting printing of money to finance the deficit. A legal restriction actually exists to restrain the GOE from this type of excessive borrowing, setting the maximum limit at 10% of average public revenue of three years. But in reality, the limit has been exceeded a number of times in the past, by 33% in 2011 to 2013.7 To address the problem at its root, Egypt needs to undertake expenditure reform to narrow the deficit and improve management of its cash resources to drawdown on public debt.

As a necessary step to improve cash management, the MOF decided in November 2016 to close the accounts of the 2600 existing accounting units in cooperation with the Central Bank of Egypt. As of April 2017, accounts for 1000 units have been closed and use of paper checks has been ended. MOF anticipates closing the accounts of the remaining 1600 units by December 2017. The MOF requested immediate assistance from USAID in this area. As a result, USAID will buy into the Washington-based IDIQ: Leadership in Public Financial Management (LPFM II) to procure the short term consultancy services to help the MOF achieve their target in closing all the accounts by December 2017 and providing training for the different implementing units.

The Contractor must develop the cash management capacity of the MOF to optimize the use of its cash resources in order to reduce government overdraft with the CBE to legal limits, and ultimately allow monetary policy to focus on real economic targets such as inflation, growth, and employment, rather than simply on avoiding threats of bankruptcy.

To achieve this result, the Contractor must develop the MOF’s cash management capacity in all functions and processes affecting cash flow and cash position of the GOE.

If gaps in the rules and regulations exist that hamper the smooth functioning of the proposed cash management system, the Contractor must propose rules and regulations that will facilitate operationalization of the system. The Contractor must provide technical

6 Effectiveness of Public Financial Management means that organizational budget units in the GOE are able to apply limited budget resources on expenditure items that best achieve program results.

7 Central Bank of Egypt (CBE). Public Financing, 2016 assistance to address any deficiencies in the existing GFMIS system to ensure that it adequately covers all cash transactions.

The Contractor must build the capacity of the MOF and the other implementing units to ensure that all public servants directly or indirectly involved in the receipt of revenues, issuance of payments, and recording and reporting of such transactions are capacitated to operationalize the cash management system in the most efficient and effective manner and use it for informed investment and debt initiation decisions.

Result 2.2: Improved effectiveness and efficiency of the budgeting process to ensure that current and capital expenditures are allocated to achieve program results such as the targets in the Sustainable Development Strategy 2030.

Egypt’s economic reform agenda forms part of a broader development plan called “Sustainable Development Strategy: Egypt Vision 2030” (SDS 2030) that the GOE adopted in 2015. The strategy has three dimensions including, a) Social Dimension, b) Environmental Dimension, and c) Economic Dimension. Each dimension has pillars and/or programs (e.g., Economic Development) under it, and each program is associated with key performance indicators and targets. The GOE’s current budgeting approach using line item budget (where expenditure items are used as organizing categories and often the budget is also aggregated by organizational units as cost centers) do not fully support the implementation of this development plan. This line item budget does not provide adequate information to the GOE authorities about the impact of crucial resource allocation decisions on program results. A program-based budgeting approach is better suited for this purpose, where resource allocation decisions can be directly tied to program results. The GOE-IMF Extended Fund Facility (EFF) program actually recommends that Egypt transitions to program-based budgeting approach in order rationalize budget decisions.

Such action will entail significant changes in the budget formulation and execution processes and procedures across all line ministries of government. For this reason, the MOF is keen on implementing Program Based Budgeting. So far, a prime ministerial decree is in process to establish a unit at MOF responsible for all aspects of program based budgeting. A board of trustees and a steering committee will be established for the MOF Program Budgeting Unit to set the strategy and oversee its implementation. Six ministries already submitted their 2017/2018 budgets using both methods: line based and program based method, as a pilot. MOF has requested immediate assistance to review the Program Based budgets submitted by the 6 ministries and identify gaps relative to international best practice. In response, USAID has procured the short term consultancy services to help the MOF review the budgets developed by those six ministries and identify any existing shortcomings or gaps.

The Contractor must assist the MOF to develop and implement a Plan of Strategic Reforms to budget preparation and execution, using the existing organizational units covered in the current budget, based on international best practice to improve the effectiveness and efficiency of the budgeting process. These strategic reforms will require building the capacity of the MOF to shift away from the exclusive focus on the current line item budgeting approach and adopt program budgeting. The program-based budget will serve as: a) a tool of policy analysis that facilitates comparison and evaluation of the cost-effectiveness of alternative spending options that have the same program objective; b) a mechanism of improving government performance by focusing on programs with specific results linked to program objectives such as the target spelled out in the SDS 2030; and (c) an instrument for facilitating accounting for the full cost of government activities.

The Plan of Strategic Reforms should identify clearly the existing gaps (e.g. institutional, legal, human resources, IT infrastructure) relative to international best practice, and the required steps to be undertaken and their sequence including measures such as: a) the adoption of a medium term expenditure framework including setting of GOE fiscal policies and priorities, and forecasting of revenue, expenditure, and surplus/deficit; b) the transition to top-down budgeting with expenditure ceilings on each budget organization units based on fiscal priorities and revenue forecasts; c) the development of performance management and monitoring system that sets targets and monitors actual results to inform resource allocation decisions of relevant budget organizational units; d) the required level of coordination between MOF and MOP regarding the recurrent costs of capital investment projects to ensure that sufficient resources are devoted to capital projects over their implementation life; and e) the capacity building efforts required to allow the MOF and other line ministries to implement the strategic reforms in the most efficient way. The Contractor must assist the MOF, and possibly some key line ministries, to implement the Plan of Strategic Reforms through technical assistance and training to ensure that MOF officials are capacitated to implement the new strategy, conduct budget negotiations, and mentor other line ministries in the process.

Result 2.3: Improved tax administration, tax revenue analysis and forecasting system with capability to inform guide tax policy formulation, domestic resource mobilization, budget formulation, and budget execution.

The small tax base and inefficiencies in tax administration have constrained the ability of the Ministry of Finance (MOF) to generate sufficient tax revenues. In fact, taxes in Egypt constituted only 13% of GDP, while it reached 27% in the MENA region, and 17% to 18% in other middle-income countries, suggesting that there is still room for Egypt to mobilize domestic resources to support GOE programs.8 The MOF aims to raise tax revenue as a proportion of GDP to 17% over the next four years. The MOF is encouraging greater formalization of small businesses by designing better tax policies. Such efforts, however, should be least distortionary on the economy, optimal in generating additional revenues for the government, and equitable for all stakeholders in the economy. To achieve this objective, accurate revenue estimation and forecasting is crucial to the design of policy options. Of equal importance is to understand the impact of different tax incentives on SMEs willingness to formalize. Although there is a small tax policy unit established at the MOF, the full program needs to be developed to train a comprehensive tax policy analytical team across the MOF including customs, real estate, and tax authorities.

To achieve this result, the Contractor must develop the revenue forecasting and tax administration capacity of the MOF to optimize revenue through effective tax policy. As part of this effort, the Contractor must develop and operationalize a complete revenue

8 IMF Country Report: 17/17, January 2017 forecasting system that will enable the GOE to: a) assess domestic resource mobilization potential at the sectoral and macro economy levels covering both formal and informal sectors; b) assess the impact of alternative tax policies on these sectors in terms of tax revenue, tax expenditures, efficiency, and equity considerations; c) inform the GOE’s budget preparation process with the likely size of the budget envelop in order to set realistic budget ceilings on programs and organizational units; and d) provide projections of alternative revenue and tax expenditure outcomes with associated probability estimates using methods such as tax elasticity and tax buoyancy. The forecasting system must include a dedicated system to cover revenue forecasting for each of the major sources of revenue, including: a) taxes on income from employment; b) taxes on corporate profit for private corporations; c) taxes on economic authorities (e.g., Suez Canal Authority and the Egyptian General Petroleum Company), d) taxes on goods and services (Value Added Tax); d) taxes on international trade; and e) taxes on real estate.

Some of the desirable features of the forecasting system would be:

a) Be theoretically consistent and parsimonious structural forecasting model specification.

b) Have a supporting database for exogenous and endogenous variables in the model.

c) Include estimated parameters with desirable statistical properties.

d) Be capable of projecting various revenue scenarios and providing associated probability estimates around those projections.

e) Include reduced form models for other sources of revenue not listed above.

The Contractor must build the capacity of the relevant MOF staff to use the system, update regularly its supporting database, and re-estimate model parameters.

In addition, the Contractor must review the existing information and communication technology (ICT) systems of Egypt's Tax Authorities and provide recommendations regarding any required strategic hardware and software upgrade, and necessary systems integration, in order to improve tax administration such as in the areas of tax declaration filing, tax payments, and issuance of tax refunds. Those ICT systems must be compatible with all the systems developed under Objective 2.

Result 2.4: Improved capacity of the MOF to measure, manage, and monitor fiscal risks.

The GOE is not only incurring growing fiscal deficit, it is also exposed to significant risk of larger deficits from contingent liabilities that would pose a real burden on the budget, when triggered. That is, the GOE can be subject to liabilities emanating from its issuance of state guarantees to cover liabilities incurred by state-owned enterprises and GOE economic authorities.

To achieve this result, the Contractor must assist the MOF to develop and operationalize a fiscal risk management system that will enable the MOF to: a) identify all major sources of fiscal risk (e.g., macroeconomic shocks, financial sector shocks, and financial position of sub-national governments and state-owned enterprises) and characterize any correlation (i.e., mitigating or compounding influence) between them; b) analyze and quantify the size of fiscal exposure to risk factors emanating specifically from changes in global prices of strategic commodities that have an impact on the GOE budget, losses incurred by public enterprises and economic authorities, and contingent liabilities related to PPP projects and debts of public enterprises and economic authorities; c) estimate the likelihood of realization of those risk factors; d) develop and implement an effective risk mitigation strategy using an optimal mix of regulations, incentives, institutional reform, governance restructuring, and available risk-transfer and risk-sharing instruments; and e) integrate risk management strategy in the government’s budget formulation, reporting, and execution

The Offerors must explore the technical assistance provided by other donors in this area, especially the IMF, and suggest in their proposals the level and sector focus, if any, of the technical assistance and capacity building to be provided to the MOF and other potential public sector entities to achieve the above result (2.4).

The Contractor must also provide IT technical assistance to evaluate the current Government Financial Management Information System (GFMIS) and provide recommendations to: a) address any shortcomings/gaps in the system and b) support the full implementation of the GFMIS, linking it to fully implement GFMIS to cover remaining functions such as government procurement, e-payroll, and warehousing. Staff training on the implementation of the GFMIS will be also required.

The Contractor must also integrate into the contract a cross cutting activity of building structured and transparent mechanisms for public-private dialogue to make policy formulation responsive in addressing emerging macroeconomic issues and challenges.

MESR will benefit from the Public Private dialogue mechanisms established under other USAID projects (e.g. the Workforce Improvement and Skills Enhancement (WISE) project) to capitalize on previous USAID investments.

Human capacity building and institutional development

Human capacity building and institutional development are key cross-cutting components of this contract. The Contractor must use reasonable efforts to work with all counterparts to develop their capacity in the activities stated above. Both off-shore (U.S. based and third country training) and in-country training must be part of the Contractor annual training plans. The majority of training programs should be conducted in-country. In-country training may include in-country workshops, public awareness seminars, roundtables, and media clubs. Off-shore participant training (in the U.S. or third countries) is subject to USAID regulations. Procurement may include IT equipment like microcomputers, servers, notebooks, printers, scanners and photocopy machines.

C.5 OPERATING PARAMETERS

The following guidance is provided with respect to sustainability and gender integration.

These guidelines and considerations apply to the overall performance of the contract.

A. Sustainability

The Contractor must seek to address the macroeconomic imbalances that impacted negatively on the ability of enterprises to grow and become more competitive by upgrading Public Financial Management (PFM) to achieve fiscal consolidation and improving public investment planning, management, and implementation, to enhance the productivity of public capital assets and the efficiency and effectiveness of public services.

The Contractor is, therefore, required to submit a sustainability plan to adequately plan for capacity building and sustainability of the interventions. This plan must include making the MOP capable of implementing enhanced procedures for investment appraisal, monitoring and evaluation, and project funding, to improve the efficiency and effectiveness of the GOE capital investments and link them to the SDS 2030 targets of key performance indicators (KPI). The plan must also build the sustained capacity of the MOF to design and implement the reforms required to improve cash management and the effectiveness and efficiency9 of the budgeting process, better manage fiscal risks, and formulate tax policies based on adequate revenue forecasting tools.

In addition, rather than focus on top-down advocacy for policy reform, the sustainability plan must focus more on working through local organizations, and the private sector for advocacy, to ensure that the appropriate infrastructure for policy reform is established.

Finally, the sustainability plan must also address gender imbalances as it is widely believed to be a necessary condition for achieving sustainable growth.

B. Gender Integration

Capacity building in the macroeconomic and fiscal stabilization area is…