Final-PFMSP_Solicitation-Amendment___2-Part_III_of_III.pdf

Issuance Date: November17, 2015

Questions Due: November 25, 2015, 09:00 AM Nepal time

Closing Date: January 22, 2016, 05:00 PM Eastern Standard Time

Subject: Request for Proposal (RFP) for USAID’s Public Financial Management Strengthening Project

(PFMSP) No. SOL-367-16-000001

To All Prospective Offerors:

The Nepal Mission/U.S. Agency for International Development (USAID) (the “Government”) is seeking proposals from qualified Contractors to provide the services as described in Section C of the attached RFP.

The USAID/Nepal PFMSP is a five-year Project that has a goal to enhance the capacity of targeted

Government of Nepal (GON) Ministries and Agencies to improve transparency and accountability of public financial management (PFM) systems. PFMSP will support the GON’s capacity building priorities, which have been identified through extensive consultations between USAID, GON and the donor community engaged in PFM reform efforts. The PFMSP will be implemented at the national level for capacity building and will focus in 20 USAID priority districts (as per Country Development Cooperation

Strategy) and 14 earthquake affected districts. The PFMSP contract period of performance is estimated to commence on and around July, 2016 and conclude after completion of five years. It is anticipated that

PFMSP will work to improve capacity of institutions and human resources to implement the GON’s PFM reform action plan.

Interested Offerors must submit separate technical and cost proposals that comply with the requirements of

Section L of this solicitation. The Government intends to award a contract without discussions in accordance with FAR 52.215-1 (f), therefore Offerors are advised to review the RFP in detail, raise questions and request clarifications by the due date, and submit a comprehensive proposal meeting all of the requirements of this RFP by the closing date. USAID plans to award a Cost-plus-Fixed-Fee

(CPFF) term type contract for a performance period as stated in the attached RFP, subject to the availability of funds.

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 other aspects of the RFP, this solicitation will be amended. Any amendments to this solicitation will be posted on www.fbo.gov. It is the responsibility of the prospective offerors to ensure that the solicitation and all amendments have been downloaded in entirety. USAID bears no responsibility for data errors resulting from transmission or conversion processes.

Please pay careful attention to Section K - Representations, Certifications and Acknowledgements of the accompanying Request for Proposals. Offerors are now expected to comply with FAR clause 52.204-7, System for Award Management (SAM), and complete the representations and certifications electronically in the SAM database. Sections B through J of the solicitation will become the basis for the contract. Any blanks in Sections A through J will be completed by the Contracting Officer before award.

Any questions regarding this RFP must be submitted in writing via e-mail to kathmanduoaaexchange@usaid.gov. Questions must be submitted no later than the indicated due date above.

Proposals must be submitted to: kathmanduoaaexchange@usaid.gov no later than the indicated closing date and time.

Issuance of this solicitation does not obligate USAID to award a contract, nor will USAID pay any costs http://www.fbo.gov/ mailto:kathmanduoaaexchange@usaid.gov mailto:kathmanduoaaexchange@usaid.gov

NOTE: In sealed bid solicitations "offer" and "offeror" mean "bid" and "bidder".

SOLICITATION

9. Sealed offers in original and N/A copies for furnishing the supplies or services in the Schedule will be received at the place specified in Item 8, or if handcarried, in the depository located in

N/A until N/A local time N/A

(Hour) (Date)

CAUTION - LATE Submissions, Modifications, and Withdrawals: See Section L, Provision No. 52.214-7 or 52.215-1. All Offers are subject to all terms and conditions contained in this solicitation.

10. FOR INFORMATION CALL: A. NAME B. TELEPHONE (NO COLLECT CALLS) C. E-MAIL ADDRESS

See cover letter

AREA CODE NUMBER EXT.

11. TABLE OF CONTENTS

(X) SEC. DESCRIPTION PAGE(S) (X) SEC. DESCRIPTION PAGE(S)

PART I - THE SCHEDULE PART II - CONTRACT CLAUSES

A

SOLICITATION/CONTRACT FORM 3

I CONTRACT CLAUSES

B SUPPLIES OR SERVICES AND PRICES/COSTS 5 PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.

C DESCRIPTION/SPECS./WORK STATEMENT 8

J LIST OF ATTACHMENTS 94

D PACKAGING AND MARKING 37 PART IV - REPRESENTATIONS AND INSTRUCTIONS

E INSPECTION AND ACCEPTANCE 38

K

REPRESENTATIONS, CERTIFICATIONS AND OTHER

STATEMENTS OF OFFERORS

F DELIVERIES OR PERFORMANCE 39

G CONTRACT ADMINISTRATION DATA 47

L INSTR., CONDS., AND NOTICES TO OFFERORS 103

H SPECIAL CONTRACT REQUIREMENTS 51

M EVALUATION FACTORS FOR AWARD 119

OFFER (Must be fully completed by offeror)

NOTE: Item 12 does not apply if the solicitation includes the provisions at 52.214-16, Minimum Bid Acceptance Period.

12. In compliance with the above, the undersigned agrees, if this offer is accepted within calendar days (60 calendar days unless a different period is inserted by the offeror) from the date for receipt of offers specified above, to furnish any or all items upon which prices are offered at the price set opposite each item, delivered at the designated point(s), within the time specified in the schedule.

AWARD (To be completed by Government)

19. ACCEPTED AS TO ITEMS NUMBERED 20. AMOUNT 21. ACCOUNTING AND APPROPRIATION

22. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION:

10 U.S.C. 2304(a) ( ) 41 U.S.C. 253(c) ( )

23. SUBMIT INVOICES TO ADDRESS SHOWN IN

(4 copies unless otherwise specified)

ITEM

24. ADMINISTERED BY

Office of Acquisition and Assistance CODE

25. PAYMENT WILL BE MADE BY CODE

U.S. Agency for International Development

G.P.O. Box 295 U.S. Embassy, Maharajgunj Kathmandu, Nepal

TBD

26. NAME OF CONTRACTING OFFICER (Type or print)

Kelly Fink

27. UNITED STATES OF AMERICA

(Signature of Contracting Officer)

28. AWARD DATE

IMPORTANT - Award will be made on this Form, or on Standard Form 26, or by other authorized official written notice.

STANDARD FORM 33 (REV. 9-97)

SOLICITATION, OFFER AND AWARD

1. THIS CONTRACT IS A RATED ORDER

UNDER DPAS (15 CFR 700)

RATING

N/A

PAGE OF PAGES

2. CONTRACT NUMBER 3. SOLICITATION NUMBER

SOL-367-16-000001

4. TYPE OF SOLICITATION

X NEGOTIATED

5. DATE ISSUED

See Cover Letter

6. REQUISITION/PURCHASE NUMBER

REQ-367-16-000003

7. ISSUED BY CODE 8. ADDRESS OFFER TO (If other than Item 7)

Office of Acquisition and Assistance (OAA)

U.S. Agency for International Development

G.P.O. Box 295 US Embassy, Maharajgunj

Kathmandu, Nepal

U.S. Agency for International Development G.P.O. Box 295

US Embassy, Maharajgunj

Kathmandu, Nepal

13. DISCOUNT FOR PROMPT PAYMENT

(See Section I, Clause No. 52-232-8)

10 CALENDAR DAYS (%) 20 CALENDAR DAYS (%) 30 CALENDAR DAYS (%) CALENDAR DAYS (%)

14. ACKNOWLEDGEMENT OF AMENDMENTS

(The offeror acknowledges receipt of amendments to the

SOLICITATION for offerors and related documents numbered and dated:

AMENDMENT NO. DATE AMENDMENT NO. DATE

15A. NAME AND

ADDRESS

OF OFFEROR

CODE

FACILITY 16. NAME AND TITLE OF PERSON AUTHORIZED TO SIGN OFFER

(Type or print)

15B. TELEPHONE NUMBER

15C. CHECK IF REMITTANCE ADDRESS IS DIFFERENT FROM

ABOVE - ENTER SUCH ADDRESS IN SCHEDULE

17. SIGNATURE 18. OFFER DATE

AREA CODE NUMBER EXT.

USAID/Nepal/PFMSP

TABLE OF CONTENTS

PART I - THE SCHEDULE

SECTION B - SUPPLIES OR SERVICES AND PRICE/COSTS

SECTION C- STATEMENT OF WORK

SECTION D – PACKAGING AND MARKING

SECTION E – INSPECTION AND ACCEPTANCE

SECTION F – DELIVERIES OR PERFORMANCE

SECTION G - CONTRACT ADMINISTRATION DATA

SECTION H - SPECIAL CONTRACT REQUIREMENTS

PART II - CONTRACT CLAUSES

SECTION I – CONTRACT CLAUSES

PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS

SECTION J - LIST OF ATTACHMENTS AND REFERENCES

PART IV - REPRESENTATIONS AND INSTRUCTIONS

SECTION K - REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS

SECTION L - INSTRUCTIONS, CONDITIONS, AND NOTICES TO OFFERORS

SECTION M – EVALUATION FACTORS FOR AWARD

ATTACHMENT 1: PFMSP LOGICAL FRAMEWORK

ATTACHMENT 2: MINISTRY OF HEALTH AND POPULATION FINANCIAL MANAGEMENT

IMPROVEMENT ACTION PLAN

ATTACHMENT 3: MINISTRY OF EDUCATION FINANCIAL MANAGEMENT IMPROVEMENT ACTION

PLAN

ATTACHMENT 4: STAGE 2 PUBLIC FINANCIAL MANAGEMENT RISK ASSESSMENT FRAMEWORK

REPORT FOR MINISTRY OF HEALTH AND POPULATION

ATTACHMENT 5: STAGE 2 PUBLIC FINANCIAL MANAGEMENT RISK ASSESSMENT FRAMEWORK

REPORT FOR MINISTRY OF EDUCATION

ATTACHMENT 6: USAID FORM AID 1420-17-CONTRACTOR EMPLOYEE BIOGRAPHICAL DATA SHEET130

ATTACHMENT 7: APPROVED INITIAL ENVIRONMENTAL EXAMINATION

ATTACHMENT 8.A: TECHNICAL PROPOSAL LEVEL OF EFFORT (WORKDAYS ORDERED) CHART

ATTACHMENT 8.B: COST PROPOSAL LEVEL OF EFFORT (WORKDAYS ORDERED) CHART

ATTACHMENT 9: SUMMARY BUDGET TEMPLATE BY COST LINE ITEM

ATTACHMENT 10: DEFINITION OF THE TERMS OF THE DIFFERENT TYPES OF COSTS USED IN THE

SUMMARY BUDGET FORMAT

ATTACHMENT 11: IDENTIFICATION OF PRINCIPLE GEOGRAPHIC CODES

ATTACHMENT 12: SF LLL DISCLOSURE OF LOBBYING ACTIVITIES

ATTACHMENT 13: PER DIEM RATES FOR GON OFFICIALS

ATTACHMENT 14-CERTIFICATION REGARDING TRAFFICKING IN PERSONS COMPLIANCE PLAN,

PURSUANT TO FAR 52.222-56

ATTACHMENT 15. POLICY GUIDANCE ON CRITERIA FOR PAYMENT OF SALARY SUPPLEMENTS FOR

HOST GOVERNMENT

ATTACHMENT 16: ABBREVIATIONS AND ACRONYMS

PART I - THE SCHEDULE

SECTION B - SUPPLIES OR SERVICES AND PRICE/COSTS

B.1 PURPOSE

The purpose of this solicitation is to seek qualified firms to implement a five-year Nepal Public Financial

Management Strengthening Project (PFMSP) to enhance the capacity of targeted Government of Nepal

(GON) Ministries and Agencies to improve transparency and accountability of public financial management (PFM) systems, as described in Section C – Statement of Work.

B.2 CONTRACT TYPE

This is a Cost-Plus-Fixed-Fee (CPFF) Term type contract. The Contactor must provide the specified Level of Effort to achieve the deliverables or outputs described in Section F in accordance with the performance standards specified in Section E based on the Statement of Work found in Section C of this solicitation document.

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

1. The estimated cost for the performance of the work required hereunder, exclusive of fixed fee is To Be

Determined (TBD). The total estimated cost plus fixed fee for the contract period is TBD. The

Contractor shall not be paid in excess of the total estimated cost plus fixed fee.

2. Within the estimated cost plus fixed fee specified in paragraph (1) 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’s expenses shall not exceed the aforesaid obligated amount.

3. It is estimated that the obligated amount is expected to cover costs incurred by the contractor through TBD.

B.4 LINE ITEMS

a. Budget

The Total Estimated Cost for the Contract Period of five years is as follows:

Item Cost Component Year 1 Year 2 Year 3 Year 4 Year 5 Total All

Years

a. Personnel/Direct Labor $ (TBD) b.

Fringe

Benefits/Allowance

$ (TBD)

c.

Travel, Transportation and Per Diem

$ (TBD)

d. Equipment (Capital) $ (TBD) e.

Supplies (General

Equipment)

$ (TBD)

f.

Contractual: BMIS upgrade and $3,000,000

Infrastructure Support

g. Contractual: Others $ (TBD)

h. Other Direct Costs $ (TBD)

Total Direct Charges

$ (TBD)

i Indirect Charges $ (TBD) j Fee-Profit $ (TBD)

Total Estimated Cost including Fee

$ (TBD)

b. Budget Notes:

1. Local currency exchange rate applied to determine the budget is US$1=Rs.100.

B.5 INDIRECT COSTS/RATES

The Contract clause entitled “Allowable Cost and Payment (JUNE 2013)”, FAR 52.216-7, specifies that the indirect cost rates shall be established for the Contractor’s accounting periods that apply to this Contract.

Pending establishment with the United States Government 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 for the prime Contractors and their major subcontractors.

(Major subcontractors” are those subcontractors expected to perform at least 20% of the technical effort.)

Prime

Description Rate Base Type Period

1/ 1/ 1/

[To be determined]

Major Subcontractors

Description Rate Base Type Period

B.6 QUICK CLOSEOUT AND CEILING ON INDIRECT COST RATES

1. Reimbursement for allowable indirect costs shall be at final negotiated rates but not in excess of the following ceiling rates:

Description Rate Base Type Period

2. The Contractor will make no change in its established method of classifying or allocating indirect costs without the prior written approval of the Contracting Officer (CO).

3. The Government will not be obligated to pay any additional amount on account of indirect costs above the ceiling rates established in the Contract.

4. This understanding will not change any monetary ceiling, obligation, cost limitation, or obligation established in the Contract.

5. Closeout of this Contract will be carried out as per FAR42.708 Quick-closeout procedure.

B.7 COST REIMBURSEMENT

The U.S. dollar costs allowable must be limited to reasonable, allocable and allowable 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. See FAR 52.232-22 Limitation of Funds for notification requirements for incrementally funded awards.

B.8 PAYMENT OF FIXED FEE

Payment of fixed fee, subject to FAR 52.216-8, may be made upon receipt of a proper invoice. Subject to

FAR 52.216-8, Fixed Fee shall be allocated based upon the proportion of the labor provided over the period covered by the invoice. In the event that the contractor does not provide the total Level of Effort stipulated in the Contract budget, the total amount of fixed fee shall be reduced in similar proportion. For example, if the Contractor has expended 85% of the total level of effort, then the Contractor is entitled to

85% of the fixed fee amount, provided that the performance has been satisfactory. The total amount of

Fixed Fee is payable upon receipt of the Contractor‘s statement that the level of effort specified in the contract has been expended in performing the contract work.

[END OF SECTION B]

SECTION C- STATEMENT OF WORK

C.1 PROJECT OVERVIEW

C.1.1 Project Title

The Project title is “USAID Nepal Public Financial Management Strengthening Project” referred to as

“PFMSP.”

C.1.2 Project Goal, Expected Results and Components

1. The goal of this five-year Nepal Public Financial Management Strengthening Project to enhance the capacity of targeted Government of Nepal (GON) Ministries and Agencies to improve transparency and accountability of public financial management (PFM) systems. PFMSP will support the GON’s capacity building priorities, which have been identified through extensive consultations between

USAID, GON and the donor community engaged in PFM reform efforts.

2. The expected results of PFMSP are linked to the DGO with Country Development Cooperation

Strategy (CDCS) Results Framework as follows:

IR 1: Improved Budget Planning and Execution Capacity of GON

IR 2: Improved Control Environment and Procurement Capacity in Targeted Ministries and/or

Agencies

IR 3: Strengthened Financial Management Functions of National Authority for

Reconstruction

3. Components: To achieve the goal and results, the Contractor must implement activities aligned with the following three project components:

Component A: Strengthen the Line Ministry Budgetary Management Information System (LMBIS);

Component B: Institutionalize control environment and improved procurement practices across selected line Ministries and Agencies; and

Component C: Support the GON’s efforts to increase financial transparency and accountability of post-earthquake reconstruction and recovery assistance.

C.1.3 Target Districts and Beneficiaries

This project will focus on national systematic reforms and institutional capacity to run effective and efficient PFM. There will be sub-national activities complementing USAID sectoral programs working in

USAID priority districts. The geographic scope will be USAID Mission’s five-year Country Development

Cooperation Strategy’s 20 focus districts in the West, Mid-West and Far-West regions, as well as the 14 highly affected districts from the 2015 earthquakes (see Map 1).

They are as follows:

The 20 focus districts are: Kapilvastu, Palpa, Arghakanchi, Gulmi, Dang, Salyan, Pyuthan, Rukum, Rolpa, Banke, Bardiya, Surkhet, Dailekh, Jajarkot, Kailali, Doti, Achham, Kanchanpur, Dadeldhura and Baitadi

The 14 highly affected earthquake districts are: Okhaldhunga, Ramechhap, Dolakha, Sindhuli, Sindhupalchowk, Kavrepalanchowk, Kathmandu, Lalitpur, Bhaktapur, Nuwakot, Rasuwa, Dhading, Gorkha and Makwanpur.

The primary GON partners, who are the beneficiaries, at the national and sub-national level shall be the

Ministry of Finance, in particular the Budget and Program Division, Financial Comptroller General’s

Office – FCGO – and Public Expenditure and Financial Accountability – PEFA – Secretariat, Ministry of

Education (MOE), Ministry of Health and Population (MOHP), and the proposed National Reconstruction

Authority (NAR).

Map 1: USAID’s target districts and the most affected earthquake districts

C.1.4 Required Technical Approach

The Contractor must build capacity using a results-oriented approach and support participating institutions to develop, maintain, and strengthen systems that increase transparency and accountability, increase efficiency, and limit opportunities for corruption. The Contractor will collaborate significantly with GON and other donor partners and implement a technical approach that is fully integrated with relevant GON strategic frameworks (such as the PFM Reform Framework).

The Contractor must implement activities aimed at achieving the results stated under each component.

Innovation is encouraged, as long as it is not at the expense of accomplishing the objectives in each component. From a technical standpoint, USAID/Nepal views the first two components of the program as broad, cross-cutting capacity building initiatives. The third component will evolve as the GON formulates its post-disaster recovery and reconstruction strategy. All of the components are important to improving the transparency and accountability of public financial management in Nepal.

Sub-national level refers to the spending units that fall under the purview of line minisitries and the DTCOs.

The new Constitution has adopted a federal structure for the country with three tiers of government. The

GON will begin institutional and systemic reforms, including PFM systems at the local, provincial and federal government levels during the life of this project. The Contractor must remain flexible and phase in government support activities so that, as new federal, provincial and local government structures and systems are created and begin to function, the Contractor is poised to provide immediate and targeted assistance as appropriate to achieve the goal and results of the PFMSP. Any related adjustments will require consultation and technical concurrence of the COR and written approval from USAID/Nepal/

Contracting Officer.

C.1.5 Contract Results Framework

The Contractor must implement this contract steered by the following IRs.

Goal: Enhanced capacity of targeted Government of Nepal (GON) Ministries and Agencies to improve transparency and accountability of public financial management (PFM) systems.

IR 1:Improved Budget

Planning and Execution

Capacity of GON

IR2: Improved Control

Environment and Procurement

Capacity in Targeted Ministries and/or Agencies

IR3: Strengthened Financial

Management Functions of

National Authority for

Reconstruction

Sub IR 1.1 Improved procedures, guidelines and systems for public financial management functions established in targeted Ministries and Agencies and GON’s capacity to operate and maintain them

Sub IR 2.1 Strengthened capacity of selected line Ministries to operationalize and sustain adequate control environment policies and procedures

Sub IR 4.1 1) National

Authority for Reconstruction develops policies and procedures for transparent and accountable execution of reconstruction and recovery funds

Sub IR 1.2 Selected

Ministries/Agencies are capable of executing the budget and producing timely, uniform and accurate reports on different aspects of the budget cycle in compliance with GON requirements

Sub IR 2.2 Strengthened capacity of selected line Ministries to manage the procurement process in adherence with the Public

Procurement Act and related rules and regulations

Sub IR 4.2 2) The 2015 post earthquake recovery process is perceived credibly by Nepal’s citizens and the international community

Sub IR 1.3 The public financial system is strengthened and extended resulting in modern, transparent, reliable, secure and resilient system and follows international best practices.

C.2 BACKGROUND

C.2.1 Country Context

Nepal is a mountainous landlocked country with a population of approximately 28 million people. Twenty five percent of the population subsists on less than $1.25 per day.

Nepal is among the twenty countries http://data.worldbank.org/country/nepal most vulnerable to multi-hazard risks such as earthquakes, floods, and landslides, which cause annual loss of life and property.

Agriculture is the source of livelihoods for 64 percent of the population and accounts for 34 percent of the GDP. Industry is limited and uncompetitive due to location, high costs, inconsistent energy supply, low product quality, labor unrest, and lack of political stability.

Nepal is undergoing a long political transition and the political situation remains fluid, following the conclusion of the Maoist insurgency with the signing of the 2006 Comprehensive Peace Agreement. A general election for the Constituent Assembly (CA) was held in April 2008. The CA declared Nepal a federal democratic republic, abolished the monarchy, and was expected to draft a new constitution by May

2009. As a result of key political parties not being able to reach to a consensus on the state restructuring issue, the CA was dissolved in May 2012 without promulgating a new Constitution. The second CA was elected in November 2013. Although the CA failed to deliver a new Constitution by the January 22, 2015 deadline, the major political parties were able to come to consensus to pass the new Constitution, which was promulgated by the President on September 20, 2015. The Constitution enshrines a wide range of fundamental rights, addresses some needs and interests of marginalized sections of society, and expands democratic space with an outline to devolve powers to the sub-national levels in the form of state restructuring. Implementation in the face of outstanding contentious political issues facing the country remains a key challenge in the years to come.

The protracted political transition has severely affected the socio-economic development process of Nepal.

Local government elections have not been held since 1997. This has seriously challenged public accountability in terms of prudent use of public resources and effective delivery of basic services to the public. The bureaucracy is further marked by frequent transfers of civil servants, obstructing program implementation and resulting in underspending of development budgets. This has serious implications for the credibility of the PFM systems of the GON and its credibility with its citizens.

In the spring of 2015 Nepal experienced devastating earthquakes, which resulted in more than 8,000 lives lost. 500,000 households became homeless and private and public property damage is estimated to be at around $7 billion.

Nearly 1 million people residing in earthquake-affected areas are likely to slip back into poverty because of loss of assets and income generating opportunities.

In total, 8.1 million people need assistance to recover from the effects of the disaster. GON conducted Post Disaster Needs Assessment

(PDNA) which has estimated $ 6.66 billion for the reconstruction and recovery. Further, GON held

International Conference on Nepal’s Reconstruction on June 25 where donors pledged $ 4.4 billion to respond the PDNA. A rapid assessment undertaken by MOF after the earthquakes found that all PFM systems, including Treasury Single Account (TSA) are working. However, the earthquakes highlighted the need to prepare for business continuity, data security and communications between the central government and sub-national entities in the event of major disruptions to normal operations. While the earthquakes threaten to erode some of the gains made in fighting absolute poverty, the reconstruction and recovery phase provides an opportunity to improve transparency and accountable of public financial management and improve citizens perception of government effectiveness.

C.2.2 Public Financial Management in Nepal

The GON is cognizant of the need to modernize its PFM system and is undertaking several reform efforts.

The objective of Nepal Interim Three Year Plan’s (TYP) for 2013 -2016 is to bring about direct positive http://www.adrc.asia/countryreport/NPL/2011/FY2011B_NPL_CR.pdf

PDNA report volume 1 page xiii and http://reliefweb.int/sites/reliefweb.int/files/resources/np_001_ocha_3w_shelter_20150623.pdf The Himalayan Times, June 13, 2015 http://reliefweb.int/sites/reliefweb.int/files/resources/np_001_ocha_3w_shelter_20150623.pdf http://reliefweb.int/sites/reliefweb.int/files/resources/np_001_ocha_3w_shelter_20150623.pdf changes in the living standards of its citizens by reducing widespread poverty and achieving inclusive, broad-based and sustainable economic growth. In order to achieve this objective, one of the top four priorities of the TYP is good governance.

Similarly, Nepal’s new Constitution has embedded State policies regarding the political and governance system, “i) Guaranteeing people’s welfare and all-round-progress through economic, social and cultural transformation, while defending and strengthening political achievements and their development; and ii) Guaranteeing good governance by ensuring equal and easy access of people to services provided by the State and making public administration clean, competent, impartial, transparent, accountable and participatory, among several others.”

The Parliament endorsed the UN Convention against Corruption; ratified the UN Convention for the

Suppression of the Financing of Terrorism; the UN Convention against Organized Crime, and amended the

Money Laundering Act. Though a policy of zero tolerance against corruption has been adopted, controlling corruption remains a challenge, and has become the government’s high priority in order to enhance ethics, integrity and accountability in every section of public life and establish a corruption-free society.

In 2008 GON formed a Public Financial Management Steering Committee, chaired by the Secretary of the

Ministry of Finance, and set up a Public Expenditure Financial Accountability (PEFA) Secretariat to lead

PFM reform initiatives. In 2009, the GON, with the support of the World Bank (WB) and the UK

Department for International Development (DFID), formulated a PFM Reform Program (PFMRP) Strategy with the objective of adopting a holistic government-wide approach to PFM reforms encompassing institutional and technical changes. The PFMRP strategy had two short-term priorities: (1) to deliver actions that yield effective results in strengthening the PFM system, and (2) to build the capacity of the

PEFA Secretariat to lead the PEFA agenda and institutionalize the reform process. Laws and regulations supporting PFM efforts have been introduced and passed, such as: the 2007 Right to Information Act; the

2008 Money Laundering Act; and the 2010 Public Procurement Strategy Framework, resulting from the

2007 Public Procurement Act.

Several implementation efforts of the 2011 Good Governance Action Plan, 2012 Action Plan for

Governance and Financial Reforms, 2012 PEFA and Fiduciary Risk Reduction Action Plan have brought some positive results, such as livelihoods improvements resulting in higher economic growth. In 2012, the

Asian Development Bank and the World Bank conducted a Joint Procurement Review Mission with the

Public Procurement Monitoring Office (PPMO).

The review noted that procurement was increasingly devolved to the local bodies but a capacity to implement at the local level was almost non-existent.

Currently, GON accords a high priority to financial good governance aiming at ensuring accountability and transparency, adapting modern accounting standards, and enhancing reporting and auditing systems to achieve fairness and the financial standard. The GON’s key strategy is to make the public expenditure management processes transparent and accountable and strengthen the PFM system so that government income, expenditure, and other financial data are objective, regular, and consistent with the international norms.

In 2014, a review of the PFM system was initiated by the GON and WB, based on the PEFA framework.

The PEFA assessment measured the soundness of the PFM framework by rating several indicators, such

The TYP recognizes the importance of good governance to establishing sustainable and peaceful Nepal and stresses the need for a greater role for local governance bodies in speeding up development efforts by mainstreaming marginalized areas and groups to ensure that all Nepalese can meaningfully participate in development initiatives.

Constitution of Nepal 2015, Article 51 State policies, clause (b) Policies regarding political and governance system http://www.lgcdp.gov.np/home/pdf/PEFAandFRRAP.pdf http://www.adb.org/sites/default/files/linked-documents/cps-nep-2013-2017-sd-03.pdf http://www.wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/07/02/090224b082fca00e/1_0/

Rendered/PDF/Public0expendi0ment0as0of0FY2013014.pdf as: fiscal and debt management, budget formulation, budget execution, internal controls, procurement, accounting and reporting, auditing, transparency and external scrutiny. PEFA findings reported that Nepal has made substantial progress in deepening the structures and processes of PFM, particularly in the use of information technology in PFM processes. Among 28 PFM performance indicators within the PEFA framework, 16 indicators improved, and 10 indicators remained unchanged and 2 indicators deteriorated.

With the implementation of the TSA and Financial Management Information System (FMIS), payments are more prompt and better monitored. Budget information has become more transparent after the implementation of Government Finance Statistics (GFS) classification and the TSA. However, many autonomous government agencies and donor projects operate outside the TSA/FMIS framework. Fiscal relations between central government and local bodies are complex. Even though there are allocation formulae for unconditional block grants, this major source of revenue for local bodies is not tracked and the timing for release of these grants is unpredictable. Procurement plans are not prepared as part of Annual

Work Program Budgets, misaligning the budget plans from budget execution. Compounded by late approval of the budget and cumbersome spending procedures, very little of the year’s development budget is spent in the first part of the fiscal year, necessitating expedited procurements in the second half of the fiscal year, often resulting in procurement and budget irregularities.

Commitment controls are weak, despite the existence of rules and regulations. Internal audit processes are beset by conflicts of interest as internal auditors at times also function as accounts officers. Audits are not focused on internal control systems and risk mitigation but are oriented to identifying transactional irregularities, which reduces their overall effectiveness.

In addition to the GON’s focus on strengthening government public expenditure and financial management systems, there has also been an increasing interest on the part of non-executive branch state actors, civil society organizations and development partners to strengthen financial accountability of the GON, with the goal of improving the use of public resources and obtaining value for money. Developing sound monitoring and evaluation systems for PFM at the project or sector level is now a key priority of the GON.

The reforms outlined above have laid the foundation for GON’s plan to upgrade Nepal from a least developed country status to a developing country by 2022. Despite the advances made in the legislative and executive frameworks for PFM and in institutionalizing the PEFA Secretariat, Nepal has a very large gap between its anti-corruption and accountability laws and policies and their actual implementation. The 2014

Annual Report of Auditor General mentions that public institutions are not effective in maintaining fiscal discipline and providing the Nepalese citizens with fiscally transparent and accountable governance. This is substantiated by ever increasing irregularities in terms of both absolute amount and percentage of audited figures. Transparency International’s 2014 Corruption Perceptions Index ranked Nepal 126 out of 175 countries.

The leadership vacuums in several of Nepal’s accountability agencies, namely the Commission for the

Investigation of Abuse of Authority (CIAA) and the Office of the Auditor General (OAG), obstructed

Nepal from addressing its governance problems and the National Vigilance Center remains institutionally weak. Therefore, GON’s highest priority is to strengthen these institutions as well.

In respect to PFM efforts within the target line Ministries, USAID envisions PFMSP working closely with the PFM/TWP committees of the respective Ministries. The Ministry of Health and Population (MOHP) has developed and rolled out a financial management improvement action plan (FMIP) which intends to strengthen its current practices in respect to financial planning, accounting procedures, internal control systems, financial reporting, monitoring, auditing and transparency measures. Based on the FMIP, the

MOHP has developed accounting software called TABUCS, which has been rolled out across Nepal. It has also developed and endorsed guidelines on internal controls, which need to be expanded to the district level. The MOHP FMIP can be found in Attachment 2. The Ministry of Education has also a FMIP which has identified the risks and mitigation measures for its financial system, which can be found in Attachment

3.

C.2.3 USAID Public Financial Risk Assessment Framework (PFMRAF) Assessment

USAID is mandated to conduct a PFMRAF assessment prior to entering into Government to Government

(G2G) implementation arrangements.

USAID/Nepal conducted a Stage 2

PFMRAF Assessment of select ministries in 2013 (MOE, MOHP, Ministry of Peace and Reconstruction) based on current and potential G2G programs and the USAID/Nepal Country Development Cooperation Strategy (CDCS), which highlights the importance of working with government entities at the sub-national level. The Stage 2

PFMRAF Assessment questionnaire was customized by USAID/Nepal and included six PFMRAF criteria, namely Budget Execution, Procurement, Ordering of Goods and Services and Payment of Invoices, Performance, External Audit, and Control Environment. The scope of the assessment included the review of functional responsibilities of relevant oversight entities, i.e., MOF, MOF’s FCGO, FCGO’s District

Treasury Controller Offices (DTCOs), OAG, Public Procurement Monitoring Office, Commission for the

Investigation of Abuse of Authority (CIAA), and National Planning Commission (NPC). The Stage 2

PFMRAF evaluated the PFM procedures of the GON and its capacity to directly implement USAID-funded activities. The Stage 2 PFMRAF assessments can be found in Attachment 4 and 5. The Stage 2 PFMRAF findings across the participating Ministries were:

C.2.3.1 Budget Execution: Program Allotments are often delayed both by Parliament and divisions causing disruptions in the budget execution process. This reflects the need for improvement in the legislative budget approval process, continued development of the TSA system, systems for promulgation of new rules by the MOF, and improved budgeting functions throughout the GON. Multiple budget execution-related information technology (IT) systems are currently in use, or in development, causing fragmentation and posing a risk of redundancy and compromising data integrity. In addition, the Financial

Management Information System which incorporates expenditure data, lacks full information on debt servicing, asset information, and investment in public enterprises, and cannot produce comprehensive financial reports. Other key risks under budget planning and execution are related to the budget process being driven by NPC ceilings and priorities and a significant percentage of funds being released in the final trimester of the FY. Lack of a multi-year planning process at all levels leads to weak long term strategic planning.

C.2.3.2 Procurement: Procurement is the most high-risk area examined in the assessments. Key risks in relation to procurement are non-adherence to provisions of the Public Procurement Act and Rules such as the creation of procurement units, lack of procurement master plan/yearly plan. Procurement plans are inconsistently created and there are no formal procurement units to take action at the Ministries. There is inadequate segregation of duties in the procurement process and the related accounting activities. There is a lack of effort by the GON to improve the procurement system through addressing OAG recommendations, capacity building, or increasing the number of procurement and accounts staff.

C.2.3.3 Ordering of goods and payment of invoices: This focus area was rated as having the lowest rated risk levels in the assessments: Some of the key risks observed in the entities in this area are weak controls http://www.usaid.gov/ads/policy/200/220

Stage 2 PFMRAF is a USAID’s risk management process to identify, mitigate and manage the fiduciary risks encountered when considering Government to Government (G2G) assistance.

in the process of creating and executing purchase orders, poor coordination between accounts and stores, responsibility for maintenance of procurement records, and lax monitoring of the ordering process.

C.2.3.4 Performance Capabilities: Project decisions tend to be centralized and the budget process is top-down, weakening Departments’ incentive to participate in a good planning process. The Medium Term

Expenditure Framework (MTEF) process requires strengthening to better incorporate strategic planning and improve the prioritization of programs and activities. At both the district and central levels, there is a lack of coordination between the Accounts Section and staff responsible for planning activities. The financial record keeping and operating performance focus areas are high risk; this is a reflection of the need for the

GON to improve its PFM system nationwide to create more accurate and timely financial reports and undertake more effective oversight of project implementation. Other key risks observed for performance capabilities relate to the lack of capacity to maintain accounting records, handle projects and report expenditure and revenue. Also, weak monitoring and coordination due to limited resources is a key risk at the sub-district level.

C.2.3.5 External Audit: The findings in this assessment are consistent with the current opinion of the PFM community in Nepal that the OAG needs to improve its operations. The OAG has yet to implement a risk-based audit strategy, instead focusing on 100 percent testing of public expenditures, which is not in line with leading practices and may stifle the efficiency and effectiveness of the organization. While the OAG has developed a Risk Registry tool to identify and prioritize organizational risks, and has conducted assessments to measure inherent and control risks throughout governmental entities, these do not currently inform the scope, nature, or timing of audit testing. The limited usage of sampling techniques, coupled with budgetary constraints, have inhibited OAG’s ability to adequately scale up IT and performance audits, as well as auditing and monitoring for the operating effectiveness of internal controls. Additionally, the unstable and impermanent status of the current political environment in Nepal limits the ability of the OAG to fully carry out their mandate. Auditing is primarily limited to financial audits and performance audits while IT audits are limited in numbers and do not adequately cover the all sectors.

C.2.3.6 Control Environment: Control Environment is a high risk examined in the Stage 2 PFMRAF assessments. In regard to an organizational risk management strategy, ministries have not formulated or documented an approach to identify risks, from both internal and external sources, and designing corresponding control activities that assist in achieving the objectives of efficient and effective operations, compliance with laws and regulations, and reliable financial reporting. While there are many well-designed control activities in certain areas, such as authorizations, segregation of duties, and retention of records, these are often implemented in isolation and without consideration of broader process-wide or entity-wide activities and risks. Additionally, management does not monitor the state of internal controls or issue reports on its design or effectiveness. There exist specific gaps in the areas of tracking and valuing assets, designing control activities to detect and prevent fraud, and periodic monitoring and evaluation of the operating effectiveness of internal controls. Significant improvement in this area would result from a concentrated effort by the GON to improve its internal audit function.

USAID/Nepal’s planned support to strengthen the PFM system appropriately aligns with the GON priorities and strategies, such as: annual and multi-year budgeting, spending, and tracking of the tax-payer and donors’ money, through a combination of sector-specific and cross-cutting governance activities.

USAID/Nepal’s efforts to improve the PFM system will build on the larger reform efforts undertaken by the GON, the Multi Donor PFM Trust Fund (MDTF), World Bank, and other bilateral donors.

C.2.4 Overview of USAID/Nepal’s Five-Year Strategy

The U.S. Government has provided bilateral development assistance to Nepal for more than 60 years, helping to build roads, schools, hospitals, and water systems; dramatically reduce poverty, fertility, and infant mortality rates; and increase literacy. USAID now seeks to build on these gains and use its comparative advantage to help Nepal develop more effective and inclusive political institutions, broaden economic opportunities, and ensure that the population is prepared to take advantage of them. This will be done through the Global Health (GHI), Feed the Future (FtF), and Global Climate Change (GCC)

Presidential Initiatives and through investments in democracy, governance, and primary education.

USAID/Nepal’s current Country Development Cooperation Strategy (CDCS) seeks to contribute to achieving the goal of “a more democratic, resilient, and prosperous Nepal.” The Mission asserts that the greatest challenges to democracy, resilience, and prosperity in Nepal lie in the capacity of governance institutions at the national and sub-national levels to meet the increasing expectations for political and economic inclusion. The CDCS Development Hypothesis, therefore, is that effective and inclusive governance, combined with investments in economic growth and human capital, will result in a more democratic, resilient, and prosperous Nepal. The USAID/Nepal Results Framework is found in Table 1.

USAID recognizes that development results do not occur in a vacuum and that a focus on sector-specific activities and results has limitations if treated in isolation. USAID/Nepal believes that if governance is improved through increased institutional capacity, greater accountability, and greater inclusion, results in all sectors will be deepened. To achieve the CDCS goal, the Mission established the following

Development Objectives (DOs):

DO 1: More inclusive and effective governance

DO 2: Inclusive and sustainable economic growth to reduce extreme poverty

DO 3: Increased human capital

The three DOs are mutually reinforcing and are all necessary conditions to achieve the CDCS goal of a democratic, resilient, and prosperous Nepal. On a practical level—because the DOs are so interconnected and because USAID asserts that greater integration and emphasis on governance will lead to more sustainable results—activities may support results under multiple DOs. For example, USAID’s health interventions are designed to increase healthy behaviors among marginalized groups and to increase their participation in local health governance bodies. USAID/Nepal’s “Health for Life Program” addresses key health system constraints, such as the health governance system and public financial management in the health sector. USAID/Nepal’s work with the education sector also provides avenues for addressing PFM, including, for example support for GON direct procurement of textbooks. USAID/Nepal’s portfolio also includes program in agriculture, energy and economic growth, which may present opportunities for collaboration with PFMSP.

As part of IR 1.2 ‘Accountability of Selected Institutions Strengthened’ USAID aims to strengthen PFM systems—those that impact multiple sectors, and especially those implicating local collection, appropriation, spending, and tracking of public money—through a combination of sector-specific and cross-cutting governance activities. USAID’s efforts to improve PFM systems will build on and be coordinated with larger efforts being undertaken by other donors, including the Asian Development Bank, the World Bank, and other bilateral donors. USAID will provide targeted support to address and mitigate risk while laying the foundation for greater use of host country systems and promoting increased accountability.

http://www.usaid.gov/sites/default/files/documents/1861/CDCS%20Nepal%20Public%20Version%20September%2

02014%20%28approved%29.pdf

Table 1: USAID/Nepal CDCS Results Framework

C.3 HYPOTHESIS

The PFMSP program is predicated on the following development hypotheses:

If selected Ministries and Agencies improve the transparency and accountability of their PFM and public procurement systems then they will efficiently deliver quality public services, thus improving citizens’ participation in democratic governance.

C.4 PARTNERSHIP WITH THE GON

Priority areas have been identified by USAID through extensive consultations with the Government of

Nepal and international donor stakeholders. All are areas not being fully covered by other assistance programs. the Contractor must coordinate and harmonize the project activities and interventions with other donors and GON programs.

The primary GON partners at the national and sub-national level shall be Ministry of Finance in particular the Budget and Program Division, FCGO and PEFA Secretariat, MOE, MOHP, and the proposed NAR. The Contractor must target audiences for proposed interventions to consist of staff involved in the budget planning and execution processes; internal controls and internal audit processes; and procurement planning and execution. The Contractor must remain flexible to accommodate emerging needs of the GON and/or USAID/Nepal within the PFMSP goal. No such additional needs are currently identified and any adjustments must be made in consultation and technical concurrence of the COR and written approval from USAID/Nepal/ Contracting Officer.

The PEFA Secretariat at the MOF and the PFM committees of targeted line ministries will provide strategic guidance and monitor the results of the project’s activities. Both the MOHP and MOE together with the development partners have formed PFM Committees/Technical Working Group under their respective sector-wide approach programs. The offeror will coordinate and collaborate with the respective

PFM committees/technical working groups throughout the implementation of PFMSP. In addition to working closely with the PEFA Secretariat, PFM Committees in the line ministries, the Contractor shall work to establish and comply by a PFMSP Steering Committee.

The Contractor shall draft a Terms of

Reference for the PFMSP Steering Committees, PFM Committees and Technical Working Groups at the ministry level.

C.4.1 Memorandums of Understanding, Capacity Building Plans, and Exit Strategies

USAID anticipates entering into number of memorandums of understanding (MOUs) to be signed between the MOF, PEFA Secretariat, selected line Ministries/Agencies and USAID/Nepal. Each MOU will also include the role (s) and responsibilities of concerned Ministry and Agency leading implementation of activities within the relevant Component. MOU will also describe the procedures of project implementation. The MOU will guide the stakeholders in maintaining proper coordination and playing their role. The USAID/COR shall be responsible for leading the MOU process with the assistance of the Contractor, if necessary.

Each MOU anticipates to include an abridged Capacity Building Plan (CBP) and Exit Strategy, and may specify targets for bringing the institution to the standard necessary for receiving US Government funds to implement agreed-upon programs. CBP will entail required skills, knowledge among the GON

The exact composition and nature of the PFMSP Steering Committee has yet to be determined in consultation with the GON.

employees and system within the targeted agencies to accomplish stated result under each component and the anticipated changes within the specific targeted ministry/agency.