The Public Finances (Management) Act 1995 (PFMA), the Public Finances (Management) Regulation 1996 (PFMR) and the National Procurement Act 2018 (NPA) regulate procurement of government contracts in Papua New Guinea (PNG).
The NPA only commenced operation on 1 April 2019 and abolished the Central Supply and Tenders Board, which was set up under the PFMA and established the National Procurement Commission (Commission), a statutory corporation with a board of directors comprising ex officio and appointed members. The functions of the Commission include undertaking fair and competitive procurements for and on behalf of the Independent State of Papua New Guinea (State), including public and statutory bodies.
The NPA applies to all procurement activities carried out by public and statutory bodies in PNG, irrespective of the source of funding for the procurement activities. Constitutional institutions are subject to the NPA and are deemed to be statutory bodies for the purposes of the NPA.
The NPA defines a “public body” and “statutory body” as having the meaning of those terms provided under the PFMA. Under the PFMA, a public body means:
Under the PFMA, a statutory body means:
Procurement is defined in the NPA to mean the acquisition or disposal by purchase, rental, lease, hire purchase, licence, tenancy, franchise, or any other contractual means, of any type of goods, works or services or any combination of them compliant with the NPA.
All procurement activities by public and statutory bodies are subject to contract. Part XIV of the NPA deals with contracts for all procurements. All contracts for procurements must be drawn, approved and cleared by the State Solicitor. Once drawn, approved and cleared by the State Solicitor, a contract cannot be altered or amended without receiving clearance from the State Solicitor.
Part VII of the NPA details the procurement thresholds and capacity limitations. In particular, under Section 26 of the NPA, the procurement thresholds for all public and statutory bodies are as follows:
Public and statutory bodies must comply with the thresholds and with the requirements of the procurement systems established by the Commission. Any contract entered or purported to be entered into by a public or statutory body contrary to the NPA is void from the moment of execution of the contract. This means no damages, compensation or any other entitlement or relief, whether legal or equitable, can be awarded by any court of competent jurisdiction under or in respect of any contract that is void pursuant to the NPA.
Part XI of the NPA outlines the preferences and reservations for procurements. Section 47 of the NPA provides that procurement of goods, work or services must grant a margin of preference to national companies and PNG citizens with the capacity to undertake or provide the goods, works or service of 15% in respect of goods and 7% in respect of works or services.
National companies are defined in the Investment Promotion Act 1992 (Investment Promotion Act) to mean an enterprise more than 50% of which is owned directly or indirectly by a PNG citizen, unless the control exercisable in law or by any agreement between the shareholders, or by agreement between the shareholders or the enterprise and a third party, or in practice, is maintained by a person other than a citizen.
A joint venture or an association between a national company or PNG citizen with capacity to undertake or provide the goods, works or services and a foreign partner must be granted a margin of preference of 4% for goods, works or services.
A joint venture or an association between a national company or citizen with capacity to undertake or provide the goods, works or services and a foreign partner is only eligible for preference where:
The NPA’s main obligation is to manage all national procurement in PNG. The PFMA’s main obligation is to manage public finances in PNG.
The NPA mandates the prior advertisement of regulated contract award procedures. Section 68(4) of the NPA states that procurements under the threshold level for minor procurements below which public and statutory bodies may procure themselves using a standardised procurement system, approved by the Commission, require public advertisement through advertisement of the procurement opportunity, by a notice published in one widely read national newspaper.
Additionally, procurements undertaken by the Commission itself require public advertisement through advertisement of the procurement opportunity by a notice published in one or two widely read national newspapers.
The type of information that must be disclosed in the advertisement is provided for under the Commission’s Operations Manual and includes:
Open bidding through advertisement is used to obtain maximum possible competition, transparency and value for money and is open to foreign or international bidders subject to other limitations referred to in this chapter.
Section 59 of the NPA states that the choice of an evaluation method for a procurement must be determined by the type, value and complexity of the procurement, using the selection method determined by the Procurement Instructions (Procurement Instructions). A Procurement Instruction is issued by the Commission and it provides instructions on matters that are not provided for in the NPA or for further clarification.
As at 31 January 2020, the Commission has issued ten Procurement Instructions, covering the following areas:
All procurement documents must fully and comprehensively detail the evaluation methodology and criteria that will apply. No evaluation criteria other than those stated in the procurement documents may be taken into account. Evaluation of bids must be completed expeditiously, using the method determined by the NPA or the Procurement Instructions (as applicable). Accordingly, although the NPA does not provide for market consultation, if a Procurement Instruction provides for market consultation, then a market consultation may be carried out. There is no provision in the NPA prohibiting market consultation.
Part XIII of the NPA outlines the procurement methods to be used for any procurement. Except as provided for under Part XIII of the NPA, open bidding must be used for all procurements. The Commission must, by the Procurement Instructions, determine the type of procurement methods that may be used for procurements. No procurement method other than the procurement methods determined under Part XIII of the NPA can be used for any procurement.
The procedure for open bidding is outlined in Section 68 of the NPA and states, among other matters, that procurements:
Section 62 of the NPA states that negotiations must not be carried out in respect of a bid, except where:
Negotiations may only be carried out where the best evaluated bid or proposal exceeds the budget of the procurement set by the Authority to Pre-commit Committee (APC Committee). The APC Committee is established under the PFMA and consists of the Treasury Departmental Head, the Finance Departmental Head and the National Planning Departmental Head, or their respective delegates. The functions of the APC Committee are:
The APC Committee is neither a public nor statutory body. It is responsible for the approval of all procurement plans for all public and statutory bodies. For the purposes of the negotiations, the APC Committee or the Board of the Commission (Board) must investigate why the cost of the procurement exceeds the budget for the procurement and may:
The NPA does not specify whether the APC Committee or the Board, after carrying out the investigation referred to in Section 62(3) of the NPA, has the authority to decide whether to cancel the procurement process and commence a new one, or negotiate with the bidder for a reduction of the scope of quantities. It can be argued that both the APC Committee and the Board may decide on the outcome of the investigation.
Section 67 of the NPA provides for choice of procurement methods and requires the Commission to determine the appropriate procurement method to be used for each procurement in accordance with the Procurement Instructions. No procurement method other than the procurement method determined by the Commission can be used for any procurement.
Section 69(1) of the NPA states that a Certificate of Inexpediency may be granted by the Board (subject to being ratified by the National Executive Council, or NEC), which authorises the use of a procurement method other than open bidding, subject to such terms and conditions as the NEC thinks fit. Section 69(2) of the NPA further specifies that the Board shall only grant a Certificate of Inexpediency in the event of:
The NEC is made up of all the ministers of the PNG government and the Prime Minister, who is the chairperson. The NEC exercises its powers and functions in various ways through various governmental agencies.
The Commission must not grant a Certificate of Inexpediency in any circumstance not specified in Section 69(2) of the NPA. The choice of the procurement procedure is not solely at the discretion of the awarding authority but is subject to the fulfilment of certain conditions as noted in Section 69 of the NPA.
Under Procurement Instruction 10/2019, an exception to open bidding is a limited procurement method that is less competitive than open bidding as it does not provide the opportunity for all potential suppliers to compete. It is allowable only in the following specified circumstances.
In cases where open bidding is restricted to PNG companies or citizens under Section 48 of the NPA, the agency is required to go through open bidding to all PNG companies and citizens, prior to triggering limited procurement under Procurement Instruction 10/2019.
The procurement of real or immovable property (or rights) such as land or buildings, including:
Under the limited procurement method, the following still apply:
The NPA provides that the Commission may issue Procurement Instructions or Guidelines that are consistent with the NPA, which are necessary and desirable for giving effect to the NPA and in general for the better control and management of procurement.
Section 53 of the NPA provides that the bidding period for a procurement is to be fixed by the Commission and must be sufficient to allow bidders to prepare and submit their bids and must not be reduced with the aim of limiting competition.
Section 58 of the NPA deals with registration, qualification and pre-qualification of bidders. Section 58(7) of the NPA provides that Procurement Instructions must specify the method of application for pre-qualification by registered bidders, the required documents to be produced to accompany the application and such other matters as are necessary to effect pre-qualification, including the period of effectiveness of the pre-qualification.
Please refer to 2.7 Eligibility for Participation in Procurement Process for more information on the registration, qualification and pre-qualification of bidders.
The Commission and public and statutory bodies must maintain records on their procurement proceedings for a period of seven financial years after the last payment was made or the contract was otherwise completed pursuant to Section 36 of the NPA.
The bidding period for procurement may be fixed by the Commission and must be sufficient to allow bidders to prepare and submit their bids and not be reduced with the aim of limiting competition (NPA Section 53).
Section 58(1) of the NPA states that the Commission and public and statutory bodies shall not receive a bid from, or contract with, any person who is not registered with the Commission under the NPA.
The NPA mandates the criteria that bidders must meet in order to be eligible for participating in a bid. As noted in 2.6 Time Limits for Receipt of Expressions of Interest or Submission of Tenders, the Commission and public and statutory bodies must not receive a bid from, or contract with, any person who is not registered with the Commission under Section 58 of the NPA. However, Procurement Instruction 04/2019 waived the requirement for a person to be registered with the Commission. This waiver ceased on 31 March 2020. Further terms and conditions of the waiver shall be determined by the Commission prior to 31 March 2020 and published on the Commission's website.
Procurement Instruction 04/2019 further clarifies that the waiver does not extend the requirements for bidders to comply with any procurement that requires pre-qualification of bids. The public and statutory body and/or the Commission undertaking procurement must ensure that the minimum requirements of the bidder are satisfied as part of the procurement process.
Pursuant to Section 58(3) of the NPA, the qualifications required of a bidder are:
Procurement Instructions must specify the method of application for registration as a qualified bidder under Section 58(2) of the NPA, the required documents to be produced to accompany the application and such other matters as are necessary to effect registration, including the period of effectiveness of the registration (NPA Section 58(4)).
Except as provided in Part XIII of the NPA, open bidding must be used for all procurements. Open bidding does not restrict participation in any procurement process to only a small number of qualified suppliers.
Procurement Instruction 10/2019 outlines the exceptions to open bidding. As noted above, a limited procurement method is a procurement method where the procuring entity, which refers to a public or statutory body under the NPA or in the case of procurement that exceeds PGK500,000, the Commission, limits procurement to a supplier or suppliers of its choice as detailed in 2.4 Choice/Conditions of Tender Procedure.
Pursuant to Section 38 of the NPA, all procurements must be conducted in accordance with the following principles:
All procurements must be conducted in a manner to maximise competition and a socio-economic return on investment that achieves value for money. Subject to the NPA, all procurements in PNG must be the subject of a public bid to ensure that, as far as is reasonably practicable, all procurements promote and maximise the use of local expertise and materials, the participation of local communities and organisations and the application of appropriate, sustainable and cost-effective technologies (NPA Section 48(2)).
For each procurement the Commission undertakes for and on behalf of a public or statutory body, the Chief Executive Officer (CEO) of the Commission, who is responsible for the daily management, business and operations of the Commission, must appoint a Technical and Finance Evaluation Committee (TFEC). The TFEC must consist of at least one person appointed by the public or statutory body on whose behalf a procurement is being undertaken, who will be the Chairman of the TFEC, a member of the staff of the Commission with competence and experience in the administrative management of procurements, a person nominated by the departmental head of the department responsible for works, a lawyer appointed by the State Solicitor, an accountant appointed by the Finance Departmental Head and other persons recommended by the CEO.
The TFEC is responsible for, among other functions:
The TFEC must act independently in relation to the performance and discharge of its functions (NPA Section 35(1)). A person shall not, directly or indirectly, by any means, seek to influence, or direct in any way, a TFEC or its members, in the independent performance and discharge of its functions (NPA Section 35(2)).
Pursuant to Section 52 of the NPA, all methods for the selection of bidders to be invited to bid must allow for fair and equitable selection and ensure maximum competition in accordance with the Procurement Instructions.
Pursuant to Section 42(1) of the NPA, the Commission and public or statutory bodies must, upon written request by any person, disclose all available information regarding any procurement or intended procurement to them. A person not involved in the preparation of bid documents, the evaluation process or the award decision must not be provided with any information relating to:
Information must not be disclosed where, in the opinion of the Commission:
The Commission has an obligation to notify interested parties who have not been selected for participation in any contract award procedure. The Commission’s Operations Manual provides that a letter must be sent to unsuccessful bidders within seven days of a Board decision being made.
Further, the Commission may remove, from its register, any person who does not meet the qualifications for registration of bidders under Section 58 (2) of the NPA. A person removed from the register does not have the legal capacity to enter into a contract and may require the Commission to confirm in writing:
One of the functions of the Commission is to organise and maintain a system for the publication of data on procurement opportunities, contract awards and any other information of public interest. Pursuant to Section 36 of the NPA, the Commission and public and statutory bodies must maintain records on their procurement proceedings for a period of seven financial years after the last payment was made or the contract otherwise completed.
The records kept must include a summary report of the procurement procedure used in respect of each contract and must indicate:
Accordingly, bidders or any interested person may write to the Commission and request the Commission to disclose any information concerning the contract award decision before the expiry of seven financial years after the last payment was made or the contract concerned was otherwise completed.
The records of the procurement process are also open to inspection by the Commission and the APC Committee. The Commission must:
The NEC may, in exceptional circumstances, declare, certify and direct that a procurement is so sensitive in terms of its defence or internal national security aspects that all records of the procurement are to be held secure and confidential even after the contract for the procurement has been awarded (NPA Section 37(2)(a)).
There is no requirement for a standstill period under the NPA and the PFMA. However, a person who is aggrieved by a decision of the Board or a public or statutory body in respect of a procurement may make a complaint to the APC Committee. A complaint must:
On receiving the complaint, the APC Committee may suspend the procurement proceedings of the Commission or a public or statutory body. The APC Committee must make a decision in writing, within 15 working days after receiving the complaint, indicating the corrective measures to be taken, if any, and giving reasons for the decision and submit a copy of the decision to the person making the complaint but prior to entering into the contract.
Section 75(4) of the NPA provides that a contract must not be entered into with a provider before the APC Committee makes a final decision in respect of a complaint.
In that case, the standstill period is from the time a complaint is made to the time a decision in respect of that complaint is made.
A person who is aggrieved by a decision of the Board or a public or statutory body in respect of a procurement may make a written complaint to the APC Committee. A contract must not be entered into with a provider before the APC Committee makes a final decision in respect of a complaint.
Any person aggrieved by the decision of the APC Committee may commence proceedings in the National Court of Justice of PNG.
Section 76 of the NPA stipulates that the Board may suspend a person from engaging in any procurement process for a period determined by it, where:
Pursuant to Section 78(1) of the NPA, all offences under the NPA are offences of strict liability. A person who, in whole or part, omits or fails to comply with a duty, obligation or requirement specified in the NPA is guilty of an offence. In sentencing a person after conviction of an offence, the rank, title or designation of the person within the public or statutory body at the time of the commission of the offence must be considered by the sentencing court so that the higher the rank, title or designation of the person, the more serious the offence, when imposing penalties (NPA Section 78(3)).
Section 78(4) of the NPA states that the penalties for conviction for an offence are:
A person, whether corporate or unincorporated, who is convicted of an offence under the NPA is permanently barred from employment with, or from contracting with, a public or statutory body. A person who has any contractual relationship with any public or statutory body is permanently barred from employing or contracting with such convicted persons (NPA Section 79)
No damages, compensation or any other entitlement or relief, whether legal or equitable, may be awarded by any court of competent jurisdiction under or in respect of any contract that is void under Section 26 of the NPA (NPA Section 26(4)).
Further, pursuant to Section 16 of the Frauds and Limitations Act 1988 (Frauds and Limitations Act):
must not be brought before the National Court after the expiry of six years commencing on the date on which the cause of action accrued.
Please refer to 4.2 Remedies Available for Breach of Procurement Legislation. As noted, the Board may suspend a person from engaging in any procurement process where:
Any person who is aggrieved by a decision of the Board or a public or statutory body in respect of a procurement may make a complaint to the APC Committee to challenge the awarding authority’s decisions (NPA Section 75(1)).
Pursuant to Section 75(2)(b) of the NPA, a complaint must be made within ten working days from the date the person first becomes aware, or ought to have become aware, of the decision of the Board of the Commission or a public or statutory body, in respect of which the person is aggrieved. Please refer to 3.4 Requirement for Standstill Period.
Apart from the suspension option referred to in 4.3 Interim Measures, the APC Committee must make a decision in writing within 15 working days, indicating the corrective measures to be taken, if any, and giving reasons for the decision, and must submit a copy of the decision to the person making the complaint pursuant to Section 75 (3) of the NPA. As stated in 4.1 Responsibility for Review of Awarding Authority's Decisions, a contract shall not be entered into with a provider before the APC Committee makes a final decision in respect of a complaint.
The NPA commenced operation in April 2019 and the Commission is yet to provide statistical information concerning the average number of procurement claims considered per year.
The authors are unable to provide a typical cost estimate as the cost varies from case to case.
Section 73 of the NPA provides for contract management and states that all contracts arising from procurements undertaken by the Commission must have the contract management of each contract assigned to third-party contract management services, which will independently manage a contract on behalf of the Commission. A third-party contract management service must:
If a Procurement Instruction permits the modification of a contract, then the contract may be modified accordingly. Further, the third-party contract management service must act impartially to make determinations or recommendations for variations to a contract to the Commission and the APC Committee.
The NPA does not provide direct contract awards unless it is a limited procurement. Please refer to 2.4 Choice/Conditions of Tender Procedure.
The NPA only commenced operation in April 2019 and there have not been any important court decisions as yet.
The authors are not aware of any legislative amendments currently being considered.
However, pursuant to Section 80 of the NPA, the Head of State may make regulations not inconsistent with the NPA, prescribing all matters that are required or permitted to be prescribed, or that are necessary or convenient to be prescribed for carrying out or giving effect to the NPA, and in general for the better control and management of procurement and implementation of the objectives and functions of the NPA.
The NPA is currently operating without regulations.
While the authors are not aware of any legislative amendments regarding the NPA, the Parliament of PNG has recently taken a positive step towards fighting corruption in PNG and passed the Whistleblowers Act 2020, which has, among others, the function to protect people who report corruption allegations against government bodies and public office holders.
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