Public procurement in Papua New Guinea is set to be subject to the most significant reforms for decades, according to Stephen Massa, Partner and Head of the PNG office for law firm Dentons. The reforms will give preferment to locally-owned suppliers.

Dentons’ Stephen Massa Source: Dentons

PNG’s public procurement framework, currently set out in the Public Finances (Management) Act 1995 (PFMA), will soon be replaced by a substantially different framework to be set out in a new National Procurement Act (NPA). This will be the most significant reform to the management of public procurement in PNG for over 20 years.

The NPA abolishes the Central Supply and Tenders Board and creates a new National Procurement Commission.

The new law also provides revised procurement thresholds and gives local companies exclusive rights to bid for State contracts valued at under K10 million.

All public and statutory bodies, except those certified as having procurement capacity, will have all their procurement capability withdrawn and all procurement will be undertaken by the new National Procurement Commission.

‘Contracts with a value greater than K10 million are required to be approved and awarded by the National Executive Council’

The NPA was passed by the National Parliament on 12 September 2018 and is now awaiting certification by the Speaker and public notice in the National Gazette by the Head of State before coming into operation.

New processes

Key features of the NPA include new procurement process and thresholds:

• Contracts with public or statutory bodies (e.g. SOEs) having a value greater than K500,000 to be undertaken by the National Procurement Commission (NPC), which replaces the Central Supply and Tenders Board.
• The NPC shall appoint a Technical and Financial Evaluation Committee (TFEC) for each procurement that it undertakes. The TFEC shall make a recommendation to the NPC to approve and award a contract. However, the NPC is not bound by the recommendation of the TFEC.
• Contracts below K500,000 can be procured by the relevant public or statutory body provided that the contract has been procured through a system approved by the NPC and the procuring public or statutory body has been certified by an Authority to Pre-commit Expenditure Committee (APC Committee), to be established under an amendment to the PFMA, as having the capacity to undertake procurement.
• Any contract greater than K500,000 not procured through the NPC, or for contracts up to K500,000 not procured through a procurement system approved by the NPC and through a body certified by the APC Committee, is void and no claim for damages, compensation or other relief can be made.
• Contracts with a value greater than K10 million are required to be approved and awarded by the National Executive Council (NEC) (i.e. the Cabinet), upon recommendation of the NPC, and to be signed by the Head of State. Contracts with a value less than K10 million are to be signed by the Chairman of the NPC and are binding on the State, or, public or statutory body.
• All procurement contracts are required to be legally cleared by the State Solicitor before they can be signed, otherwise they are void. Once cleared by the State Solicitor a contract cannot be altered or amended without the alteration or amendment being legally cleared by the State Solicitor.
• Certificates of Inexpediency (COI) may be granted by the NPC, subject to the COI being ratified by the NEC, which authorise the awarding of a contract other than through public tender in two limited situations:

• • declared emergencies
  • negotiations for a loan to a public or statutory body
• Where there is a conflict between the new procurement laws and a condition imposed by the donor of funds (e.g. foreign government aid agencies or international organizations such as the World Bank or ADB), the conditions of the donor shall prevail with respect to the procurement that uses the funds. This ensures that donors can stipulate that their funding is conditional upon the provider of goods, works or services originating from the country of the donor.

‘Contracts for a value up to K$10 million can only be awarded to 100% nationally-owned companies or citizens.’

National content

• Contracts for a value up to K$10 million can only be awarded to 100% nationally-owned companies or citizens.
• Contracts with a value greater than K$10 million but less than K$30 million are required to have at least 50% national content.
• Contracts greater than K$30 million can be awarded to all companies and persons.
• Bids by national companies or citizens with the appropriate capacity to perform the contract are afforded a margin of preference of 15% for goods and 7% for works or services. Joint ventures between national and foreign companies and persons are afforded a 4% margin of preference for goods, works and services provided that the JV is majority national owned (as demonstrated by profit and loss sharing in the JV agreement). This effectively means that bids by foreign companies or persons will need to be 15%, 7% or 4% (as the case may be) below the lowest bid by a national company or person with the appropriate capacity to compete on price.

This is a major reform to PNG’s national procurement laws and there is now an express requirement to prefer national companies and persons where they have the capacity.

Failure to adhere to these detailed laws can have significant consequences.