Margin of preference: New law grants exclusive rights for citizens and government- owned companies to bid on public contracts

In September 2018 the Parliament passed the National Procurement Act (NPA) 2018, which abolished the Central Supply and Tenders Board (CSTB) and replaced it with the new National Procurement Commission (NPC). The decision dissolved the public procurement framework previously set out in the Public Finances (Management) Act 1995. Under the new act all public procurement contracts with a value of over PGK500,000 ($152,000) are to be undertaken by the NPC.

Local Content 

The new law gives citizens and state-owned companies exclusive rights to bid for government contracts valued at under PGK10m ($3m). Contracts valued at a higher amount are now required to be approved by the National Executive Council. Contracts valued greater than PGK10m ($3m) but less than PGK30m ($9.1m) are required to have at least 50% local content. No such restrictions are imposed on contracts that are worth more than PGK30m ($9.1m).

With the introduction of the NPA 2018, all government bodies – except those certified as having procurement capacity – will have their procurement rights withdrawn and the responsibility for procurement will be centralised under the NPC. Government departments that seek to procure on their own will need to demonstrate their credentials to undertake procurement, including history, experience and ability to carry out good public finance management practices.

Contracts valued below PGK5000 ($1520) can be procured by the relevant government body, provided it is procured through a simplified system approved by the NPC. The limit for procurements for which public bodies can acquire goods or services on their own using a standardised system is between PGK5001 ($1520) and PGK500,000 ($152,000). The commission will set up regional committees tasked with procuring on behalf of district and provincial governments.

The NPA 2018 is arguably the most significant reform to the management of public procurement policy in PNG in over two decades. Under the act bids by national companies or citizens with capacity to honour the contract are afforded a margin of preference of 15% for goods and 7% for works or services, while joint ventures between local and foreign companies are extended a 4% margin of preference, provided the majority holding in the joint venture is by a national firm or citizen. Effectively, this means that bids by foreign players will need to be at least 15%, 7% or 4%, respectively, below the lowest bid by a local firm in order to compete on price.

Time Will Tell 

By centralising the procurement process the government seeks to take advantage of economies of scale and stem the leakages in the system that give rise to graft, corruption and delays in public works. If executed well, the new procurement process will not only ensure greater accountability and transparency but also lower expenses for the exchequer.

In passing the bill the government was careful not to adversely impact donor-funded infrastructure work. James Marape, the then-minister of finance, clarified that, where there was a conflict between domestic procurement laws and the conditions imposed by donors, the conditions of the donor shall prevail with respect to the procurement. As such, the new rules should have no impact on donor-funded projects, which make up a significant portion of construction works in PNG.

“The local construction sector is driven by infrastructure projects funded by international development partners, especially those developments located outside Port Moresby,” Matthew Lewis, managing director of domestic company Hornibrook NGI Construction, told OBG. “Chinese companies, however, remain dominant in Port Moresby, as well as in China-funded infrastructure projects elsewhere in PNG.”

The NPC began operating in April 2019 but will come into full effect in 2020. During the transition period the CSTB will carry out the primary functions of the NPC. Meanwhile, the NPC will undertake a thorough review of the public procurement process and prepare standardised bidding documents, guidelines and specifications.