Lebanon Public Procurement Law
As the USD/LBP market exchange rate skyrockets, and since the October 2019 uprising, the public debate has shifted to focus on the fight against corruption. The economic crisis in Lebanon has been an ongoing freefall and was bound to happen ever since the establishment of the post-civil war economic model coupled with massive corruption and years of neglect.
One of the major reforms that could reshape Lebanon’s economy towards a more sustainable model is the reform of public procurement. This reform was a cornerstone in 2018 in the design of the CEDRE conference.
Lebanon’s public procurement system is very fragmented, inefficient, and deeply corrupt, the quality of the procurement system is below average. It accounts for 20% of the central government expenditures and 6.5% of the Gross Domestic Product (around USD 3.4 billion) on a yearly average. According to Transparency International, Lebanon ranks 137 over 180 countries when it comes to the quality of public procurement.
The legal framework governing public procurement was archaic, contradictory, and cleared the way for political patronage. The lack of laws and regulations has led to a decline in the quality of public procurement: Lebanon Decree No. 14969/1963 on Public Accounting and Lebanon Decree No. 2866/1959 on Public Tenders, as amended in 1963, have lost all validity. The corrupt political class takes advantage of the gaps in the texts and the political coverage to conclude amicable contracts which are, most of the time, inefficient and unsuccessful.
The Lebanese government promised, ever since the CEDRE conference in 2018, major reforms to the public procurement sector. In 2018, the government announced the Capital Investment Program (CIP). In order to reorganise public procurement by introducing model specifications and clear procedures, Lebanon needs to provide itself with a well-equipped and modern law to fight the institutionalised corruption and looting. The promulgation of a new law is considered as a necessary and unavoidable condition for all the rescue plans proposed for Lebanon from CEDRE, the IMF, and the International Community in general. A draft law was proposed by the Basil Fuleihan Institute and by MP Yassin Jaber based on the Methodology for Assessing Procurement System in Lebanon (MAPS)’s report.
In July 2020, a MAPS report was published about the state of public procurement in Lebanon and the results were neither surprising nor shocking: disastrous public procurement regulations and deep-rooted corruption.
The draft law is aligned with international standards and could be an important step towards a better public procurement system, as it advances the procurement regime dating back to the 1960s. It was adopted on 30 June 2021 by the Lebanese parliament and published in the Official Gazette on 29 July 2021 as Lebanon Law No. 244/2021 on Public Procurement.
Lebanon Law No. 244/2021 is a milestone, but it raises concern when it comes to its implementation that needs to be coupled with good governance and accountability in order to have a positive impact.
Is Lebanon Law No. 244/2021 as promising as it is meant to be? Can we expect some real change in the upcoming years?
Promises of reform
The MAPS report and the state of public procurement
The MAPS report stands for Methodology for Assessing Public Procurement Systems. It assesses the state of public procurement in Lebanon and is prepared by the Lebanese Institute of Finance. Its objective is to identify strengths, weaknesses and corruption risks. It helps public actors to move towards better and more transparent practices. The latest MAPS report was published in July 2020. The Agence Française de Développement (AFD) and the World Bank (WB) have pooled their expertise and resources to support the Lebanese Institute of Finance in preparing this document.
In the current context, this report gives guidelines and is the first step for a reform that is a condition for obtaining financial assistance from the IMF and the international community.
As for public procurement in Lebanon, according to the MAPS report, its state is below the regional average and is considered among the most corrupt in the world.
Lebanon checked 11 out of the 210 criteria for evaluation adopted by the Organization for Economic Cooperation and Development (OECD) and the WB. For example, there were no standardised and clear documents, no effective complaint mechanisms, excessive use of Over the Counter (OTC contracts), limited access to information for the public, overlapping roles of control entities, and a number of exceptions to every rule. These factors inhibit competition, paving the way for corruption, collusion, and conflicts of interest, encourage inflation in market pricing and keep public investment at a relatively low level (5% of GDP).
After uncovering the state of public procurement in Lebanon, the MAPS report offered recommendations, among which include:
- establish an independent review body in line with international standards to handle complaints, and set a clear timeline for handling the complaints;
- eliminate the conflicts of roles of the Court of Accounts and the State Council as appropriate for preventing both the reality and the appearance of a lack of impartiality and independence of the rulings made;
- give the State Council necessary authority to enforce its decisions and prevent administrative silence; and
- introduce the possibility to summarily suspend the procurement process when a complaint is made and introduce a standstill period to prevent a contract from being concluded and entered into force before a decision is taken based on a complaint against the award decision.
Based on these recommendations, the draft law was proposed to the Parliament in February 2020.
Lebanon Law No. 244/2021 on Public Procurement
Lebanon Law No. 244/2021 is based on the universality of all transactions of the Lebanese State with all its institutions and services.
A clear public procurement system, in line with international standards and based on legal and institutional foundations is thought to achieve savings of around USD 500 million every year, according to a study conducted by Basil Flueihan Institute of Finance.
Lebanon Law No. 244/2021 is aligned with international standards such as the Model Law of the United Nations Commission on International Trade Law (2011), and the findings of a comparative study of regulatory frameworks adopted by our Arab neighbours, including Jordan (2019), Egypt (2018), Palestine (2014) and Tunisia (2014).
Lebanon Law No. 244/2021 promotes the integration of public procurement within the Public Finance Management Cycle and advocates for multi-year budgeting, which ensures strategic visibility of financial flows. It is also in favour of local economic development, employment, national production, and resource optimisation.
Lebanon Law No. 244/2021 has 8 guiding principles: integration, transparency, competitiveness, efficiency, accountability, integrity, professionalism, sustainability, and local development.
- Integration: The provisions of Lebanon Law No. 244/2021 apply to all administrations, institutions, bodies, and agencies that are responsible for public funds expenditure.
- Transparency: Ensured for all public procurement operations, and all stakeholders have access to all the data and information electronically. Many documents related to procurement procedures would be published according to Lebanon Law No. 244/2021 even if some are not available when related for example to “national security and general security”. Such exceptions are understandable but seem absolute, not leaving any space to assess the harm of access versus public interest, as outlined Articles 6 and 9 of Lebanon Law No. 244/2021.
- Competitiveness: Ensured by conducting public procurement using competitive procedures to fight corruption.
- Efficiency: Ensured by rationalising public spending and ensuring value for money while providing services that are of quality to citizens, and building efficient relationships and collaborations between the public and private sectors.
- Accountability: Ensured by overseeing control mechanisms throughout the whole cycle, and developing a system for appropriate complaint and effective processes for sanctions.
- Integrity: Notably ensured by using digital methods (e-procurement) to reduce corruption and conflict of interest.
- Professionalism: Ensuring that all procurement workforce involved in all stages of procurement meet high professional standards and have the capacity to continually deliver value for money efficiently and effectively.
- Sustainability and local development: Ensuring that public procurement is aligned with the Sustainable Development Goals (SDGs) in their economic, social, environmental dimensions and balanced against the primary procurement objectives.
This reform aims at providing more clarity and flexibility and ensuring more efficiency, better assessment, monitoring, risk management and accountability, while enhancing service delivery to citizens. It also meets the main demands for transparency in public expenditure management and contributes to transitioning the country’s economy to a model that is more profitable and more competitive.
Concerns related to the provisions of Lebanon Law No. 244/2021 and its implementation
The public procurement reform is presented under the form of a new Code of Public Procurement. It mainly tackles procedures and consists of 110 articles. The draft of Lebanon Law No. 244/2021 was read and edited by major stakeholders from the private and public sectors as well as the legal community.
The pre-contractual complaint mechanism
One of the major issues that was very much debated in Parliamentary committees when discussing the draft of Lebanon Law No. 244/2021 was the “nature” of the pre-contractual complaint mechanism. This mechanism is aimed at rendering the public procurement process more effective. Finally, the pre-contractual independent review body was approved and is described in Articles 89-99 of Lebanon Law No. 244/2021.
Prior to the reform, the procurement system had a weak and inefficient complaints review mechanism with no review body with a proper expertise to handle these complaints in the pre-contractual phase. Complaints used to be addressed to the Central Tender Board, the Court of Accounts, or even the State Council Judge of Urgent Matters. There was nothing systematic or unified about the institution that should receive these complaints due to legal fragmentation.
When it comes to the State Council, the complaints were not aligned with the speed or quality of international standards and were therefore unsatisfactory.
As mentioned previously, the MAPS report pointed out the lack of regulations when it comes to abiding by timelines and quality of review and resolution.
The report also recommended that these complaints be handled by an independent authority.
More than 10 consultation meetings took place to tackle this matter and finally led to a common understanding. The types of review bodies that were considered were either an independent review body or a body belonging to the judiciary.
International experts alongside the MAPS report advocated for an independent review body. They confirmed that referring to an independent review body is more advantageous than directly referring to the judiciary as a first instance. First, it is more efficient. Second, the independent review body would have more expertise since the members of that body would be experts, well versed in procurement procedures and rules compared to judges.
Third, in Lebanon, there are no first instance administrative courts, only the State Council. If a “first instance” body is not instituted, complaints will go directly to the State Council and that would be problematic. The State Council’s decisions are often issued too late to have any impact on the procurement procedure and its outcome.
In this newly approved Lebanon Law No. 244/2021, the pre-contractual review body consists of four members appointed by the Council of Ministers in a decree (a president, three members). This raises the question of independence. The members can have no ties and no interest (direct or indirect) in any entity or administration part of the procurement. The conditions that the members must abide by in order to qualify as members of this body are found in Articles 91-94 of Lebanon Law No. 244 /2021. Until this review body is created, all complaints must be referred to the State Council, according to Article 103 of Lebanon Law No. 244/2021.
The electronic procurement
Electronic procurement is stipulated in Articles 66-71 of Lebanon Law No. 244/2021. E-procurement is a necessary step towards an e-government. The development of a central e-platform for public procurement allows information to be published. This platform should provide free access for decision makers and stakeholders to ensure the good implementation of Lebanon Law No. 244/2021 and to guarantee a transparent and fair procurement process. This step is crucial to improve the procurement system. However, Article 71 of Lebanon Law No. 244/2021 defers all details of electronic procurement to a decree by the Council of Ministers which is criticised as adding another layer of steps towards efficient and effective implementation of Lebanon Law No. 244/2021.
The beneficial ownership
Another weak point in Lebanon Law No. 244/2021 is the absence of provisions related to beneficial ownership data in procurement, which is already in place in several countries: 112 countries have committed to beneficial ownership transparency. The popularity of beneficial ownership provisions in public procurement rose due to numerous procurement scandals in the last few years, for example in the Czech Republic and the UK.
In Lebanon, and under the pressure of the international community, laws were adopted to increase transparency. One of them was the amendment of Lebanon Law No. 106/2018 on Tax Procedures through the introduction of the concept of beneficial ownership and of sanctions for the non-declaration.
Decision No. 1472/1 clarified the definition of beneficial owner further. According to the said decision, the beneficial owner is defined as “the natural person who holds directly or indirectly 20% or more of the share capital, or who holds the majority of the voting rights, or who holds the "main" decision-making rights, for example that of the dismissal of directors or supervisory bodies, or any person in a "senior management" position.”
The concept of beneficial ownership helps us understand the company’s true ownership through open data platforms. According to the World Bank, 70% of all the grand corruption cases involve anonymously owned companies.
Publicly available beneficial ownership data can only benefit procurement. First, this data detects actors trying to subvert existing legislation for personal gain and therefore prevents corruption and fraud: the information can help detect undisclosed /hidden conflict of interest and raise red flags on potential bidding rigging and collusion. Second, it enhances due diligence and improves competition: by reducing operational and financial risks, by diversifying suppliers and by detecting shared ownership. Third, it verifies the eligibility of suppliers for preferential public procurement also known as strategic procurement and which is any procurement that gives preference to certain suppliers, thereby deviating from the traditional principles of public procurement of equality, non-discrimination, and competition.
Overall, beneficial ownership information helps combat money laundering and corruption while exposing conflict of interests. It provides a healthier environment for government procurement.
Therefore, and although Lebanon has enacted laws related to beneficial ownership, it seems important to reinforce the legislation and to include this concept in the vital area of public procurement for more transparency and in the objective of a better fight against corruption.
Conclusion: a step in Lebanon’s fight against corruption
Most African countries went through public procurement reforms under the pressure of the World Bank and the International Community. The laws are, on paper, good laws but did not answer and adapt to the circumstances and problems of each country. Therefore, the public procurement in some African countries is still dysfunctional even with an updated legal framework that is aligned with international standards.
Public procurement is a pillar indicator of the State’s development. However, the fact that Lebanon Law No. 244/2021 is an important and well-drafted law in general does not ensure its lawful and effective implementation in Lebanon, as corruption is still deeply rooted in the socio-economic-political system. That said, Lebanon Law No. 244/2021 is an essential step towards the fight against corruption and efforts to enact it should not go in vain. Consequently, it is crucial to allocate all necessary resources and focus on the issuance of all necessary decrees and on moving forward with the implementation plan for Lebanon Law No. 244/2021.