Presentation to Rwanda Permanent Secretaries and Budget Officers

1. Contract Information
that every
Budget Officer
needs to know
Prof. William E. Kosar
Senior Legal Advisor / UNDP
0782 22 00 79

2. 2
Today we will discuss
•Types of contracts
•Needs
•Contract checklists
•Dangers with MOUs
•Performance Guarantees
•Bid Rigging

3. 3
Overview of Contract Law
•The general requirements for the conclusion of a
contract according to the Contract Law of Rwanda
are the following:
•Mutual assent
•Capacity of contracting
•Benefit of the contract
•Licit cause

4. 4
When must Contracts be in Writing?
•Contracts generally do not have to be in writing
•Art 42 of the Contract Law provides that the following
types contracts must be in writing:
• a contract whose performance duration is more than 1
year
• a contract impacting the right on immovables
• a surety contract
• a contract for the sale of goods for the price of RWF
50,000 or more
• a contract for the sale of securities

5. 5
TYPES OF CONTRACTS

6. 6
Public Contracts
•All public contracts relate to Goods, Works, or
Services
•Goods include automobiles or equipment
•Works include new buildings or latrines for a
school
•Services include consultants & cleaning services
for a ministry building
•Exceptions to using public contracts occur when
the government decides that for security reasons,
it must use another method to enter into a
contract

7. 7
Fundamental Principles of Public Contracts
•Transparency
•Competition
•Economy
•Efficiency
•Fairness
•Accountability

8. 8
General Conditions of Contracts
•GCCs are intended to simplify your work
•Repetitive contracts that are NON-changeable & make
contract review easier
•The only things that change are the Special Conditions—
these are the EXPRESS TERMS of the contract.
•There is to be NO VARIATION of the General Conditions.
•GCC Works deals with construction of stores, offices,
residences, schools, hospitals, etc.
•GCC Goods (or Deliverables) relate to contracts for
MOVABLES.
•GCCs - Works & Goods currently being developed by LAS

9. 9
Public Private Partnerships (“PPP”)
•PPPs represents a method of procurement that brings
together public and private sectors in a long-term
partnership for mutual benefit with regards to the
provision of public services.
•Private sector supplies infrastructure assets & services
that traditionally have been provided by the Government
• PPP contracts stress long-term service delivery rather
than asset creation; services can be provided to the
government or directly to final consumers.
•Rwanda is currently developing a Public Private
Partnership Law.

10. 10
Types of Resource Exploration Contracts
•Concession-contractor has exclusive rights to explore,
develop, sell & export oil or gas or minerals from a
specified area for a fixed period of time. The oldest &
most widely used form of Exploration & Production (“E &
P”) contract.
•Production Sharing Agreements (“PSA”) the State
enters into a PSA with Contractor for specified time
•Contractor finances exploration & development. If
successful, the Contractor recovers its costs & earns profit
by receiving a share of production
•Royalties & Income Tax are paid as applicable in
accordance with the law

11. 11
Power Purchase Agreements (“PPAs”)
•PPA is a long-term agreement between an Independent
Power Produce (“IPP”) & purchaser, generally the State.
•Negotiating & signing a PPA is a critical step in the
development of any energy project because it secures a
long-term revenue stream through the sale of energy
from the project
•Having a PPA will also be a condition to any equity and
debt financing for the IPP
•From the point of view of the utility, or buyer of
electricity, reliable power at a reasonable price is one of
the most important criteria

12. 12
Checklists
• Have a summary of the important contract
details at the front of the file
• When reviewing a contract, can check for the
essential terms of the contract & use it for a
convenient summary for the file & when
reporting
• When drafting contract, it provides a checklist
of items to include. E.g., it can be given to
laymen in your ministry who will sketch out the
essential terms of the contract that will form
the basis of your instructions to the lawyers

13. 13
Checklists
• Intended to be used by both the instructing
Ministries as well as by LAS staff & GoR
lawyers to ensure that all important items are
included

14. Pitfalls of MOUs

15. 15
When to use a MOU
•MOUs are used between government
departments & intra-corporately as a party
cannot contract with it self
•They are used when the exact name of the
contracting parties is unknown or in agreements
between Ministries & NGOs when the agreement
should technically be with GoR
•Often these parties are not legal persons &
cannot enter into binding legal agreements
•MOUs can be binding
© William E. Kosar 2011

16. 16
Memorandum of Understanding
(“MOU”)
•It is critical for the parties to agree on
whether or not they intend the document to
impose legally binding obligations
•If the parties wish the MOU or individual
clauses in the MOU to be legally binding,
they should state this intention clearly &
unambiguously in the MOU
© William E. Kosar 2011

17. 17
Functions of MOUs
•MOUs can assist GoR ministries & agencies
clarify roles & responsibilities and manage
expectations associated with projects to be
undertaken with other GoR parties or NGOs
•Non-binding MOUs may be terminated without
legal consequence in some circumstances.
•This flexibility is considered to be a significant
advantage for GoR
© William E. Kosar 2011

18. 18
MOUs between Government Parties
•MOUs are helpful when 2 or more
government parties wish to collaborate on
a particular project or working arrangement
•In many cases, the parties will be unable
to, or legally prohibited from, entering into
a legally binding contractual arrangement
with each other, because 2 different arms
of the same legal entity are unable to
contract
© William E. Kosar 2011

19. 19
MOUs between GoR & Private Parties
•GoR Ministries & institutions may wish to
enter into an MOU with a private party in
circumstances where a complex
development project is being undertaken &
the details for the project not yet
determined
•MOUs describe the key components of the
project, the roles & relationships of the
parties in relation to the project, and the
conditions precedent for the project
© William E. Kosar 2011

20. 20
MOU Template
© William E. Kosar 2011

21. 21
Memorandum of Understanding
(“MOU”)
•If it is the intention of the parties that the
MOU be non-binding, the MOU should
provide explicitly that the parties do not
intend to enter into a legally binding
arrangement, but intend to comply with the
framework provided by the document
© William E. Kosar 2011

22. Guaranteeing
Performance under a
Contract
Standby Letters of Credit

23. 23
Guarantee Types
• Performance guarantees
• Advance payment guarantees
• Progress payment guarantees
• Warranty or retention (holdback)
guarantees

24. 24
Basic Types of Guarantees
Bid Guarantee
•evidence of serious intent to supply the goods or
services if selected
•In the event that the selected supplier is
unwilling or unable to carry out the contract, the
Buyer can collect the amount of the Bid
Guarantee

25. 25
Law on Public Procurement, Art 1(5)
“Bid Security” means
any guarantee by a
bank or other relevant
institution to allow the
prospective bidder to
participate in tendering
<Garantie de
soumission » signifie
toute garantie émise par
une banque ou une
autre institution
habilitée, constituée
pour garantir la
participation du
soumissionnaire à la
concurrence

26. 26
Basic Types of Guarantees
Advance Payment Guarantee:
•covers the amount of the down-payment
•provides GoR with some security
•if the Supplier does not deliver under the terms
of the contract, the amount of the down-payment
would be retrievable

27. 27
Basic Types of Guarantees
Performance Guarantee:
•permits GoR to draw on the Guarantee if the
Supplier fails to perform according to the terms
of the contract

28. 28
Law on Public Procurement, Art 1(13)
“Performance security”
means any guarantee by a
bank or any other relevant
institution established to
guarantee the procuring
entity that in case the
contract is not performed,
be it technically or at the
level of deadlines, the
procuring entity would
receive the amount provided
for such a guarantee
«Garantie de bonne
exécution» signifie tout
engagement pris par la banque
ou émis par toute autre
institution habilitée, pour
garantir l’entité de passation de
marché que si le contrat n’est
pas bien exécuté, que ce soit au
niveau technique ou au niveau
du respect des délais impartis,
l’entité de passation de marché
recevrait le montant prévu pour
cet engagement

29. 29
Performance & Bank Guarantees
•Bank Guarantees/Bonds for Performance for
both Works and Goods as well as an advance
Payment Guarantee
•These are forms of Letters of Credit
•You MUST ensure that each of these forms
issued in the ORIGINAL by bank or insurance
company licensed to operate in Rwanda and/or
another major international bank/insurance
company

30. 30
Law on Public Procurement
•Article 31—Tender Security
•Articles 75-80—Performance Security
•Article 87: Amount of advance payment
and its security
The advance payment shall not exceed 20 % of the price
of the tender & shall be paid upon submission by the
successful bidder to the procuring entity of an advance
payment security equivalent to the advance itself.
That security shall be given by a bank or any authorized
financial institution.

31. 31
Due Diligence on Security
•Confirm that it is an actual & ORIGINAL guarantee issued
by bank or insurance company licensed to do business in
Rwanda or is a major international bank.
•If doubt financial strength of issuing financial institution,
or if it is on a Blacklist that may have been developed by
the GoR, insist that the security be CONFIRMED by a major
international bank
•Verify the credit & request amendments, if necessary.
•Determine if there are any conditions attached or any
additional documents required
•Confirm that the financial instrument is IRREVOCABLE

32. 32
Due Diligence on Security
•Contact the issuing bank or insurance company to
determine that they really did issue the security
•Note date of expiry. Is it acceptable? Also diarise the
date for 1 month prior to the expiry & confirm that an
extension/renewal is available if necessary
•Ensure that terms and conditions reflect the contract
particularly with regards to the amount. The percentages
are noted in the Law on Public Procurement
•Confirm that you actually have the security in hand

33. BID RIGGING/
Truquage d’Offres

34. 34
Tendering
•The tendering process is one of the most
effective & frequently employed means to
obtain the best price for goods & services
•Bid-rigging schemes reduce a firm’s ability
to compete domestically & internationally
•Bid-rigging may cause public sector to pay
too much for goods & services resulting in
reduced public services, programs & higher
taxes

35. 35
BID RIGGING
•conspiring to fix the bidding
process to suit the collective
needs of the producer’s suppliers

36. 36
Public Procurement Law—Art. 1
•11° “Fraudulent
Practices” refer to any
act of lying, providing
misinformation, including
collusive practices
among bidders aiming
at influencing the
procuring entity to
making wrong
decisions or to giving
room for poor
execution of the
contract
•Manoeuvres
frauduleuses signifient
des actes mensongers,
des déformations
d’informations y compris,
des ententes illicites
entre soumissionnaires
afin d’influencer l’entité
de passation de marché
àprendre les décisions
erronées ou une
mauvaise exécution du
contrat

37. 37
Common Patterns or Forms of
Bid-Rigging
•Cover Bidding
•Bid Suppression
•Bid Rotation
•Market Allocation
•These forms or patterns are not
exclusive
E.g. Market Allocation may also involve Cover
Bidding

38. 38
Cover Bidding
•Conspiring Bidders agree to submit
higher prices than the firm chosen to
win
•They submit bids that are made to
contain special terms that make them
unacceptable to the PE

39. 39
Bid Suppression
•The opposite of Cover Bidding
•1 or more parties agree not to bid
or withdraw their bid to ensure the
firm chosen to win is successful

40. 40
Bid Rotation
•The systematic or random method by
which the conspirators take turns
being the lowest bidder
•These schemes tend to be very
sophisticated because the conspirators
will each try to ensure that they
receive an equivalent share of the
contracts

41. 41
Market Allocation
•An agreement among the Bidders
not to compete for certain
customers or in certain geographic
regions

42. 42
Warning Signs
•The Buyer/Seller/PE is in the best
position to detect bid-rigging

43. 43
Warning Signs include:
•Bids exceed published list prices,
engineering or pre-tender cost
estimates
•New or infrequent supplier bids,
resulting in a significant drop of
historic pricing structure
•Bids for Sale of Land are below Sale
Price estimates

44. 44
Warning Signs include:
•Records indicate that the same
supplier has been the low bidder & has
been awarded the contract on several
occasions
•The successful bidder sub-contracts
work to its competitors that submitted
higher bids for the same contract

45. 45
Warning Signs include:
•Bids from competing companies containing
the same mistakes
E.g. spelling & calculation errors
•Bids of 2 competitors are submitted in the
same envelope
•Bidder personally delivers their bid along
with a competitor's bid

46. 46
Warning Signs include:
•You are aware that competitors meet or
communicate somewhere in the vicinity of where
the bids are submitted
•Bidder appears to have knowledge of
competitor's bid before any contract award or
release of information
•You are aware that only 1 bidder contacted
wholesalers to obtain the pricing logically required
to prepare bids

47. 47
Warning signs include:
•There is a large difference between the price of the
winning bid & other bids
•On successive tenders, the lowest bidder does not accept
the contract
•Accordingly, the award goes to the 2nd or 3rd bidder

48. 48
Penalties--Article 176
Violation of Public Procurement rules & code
of conduct
Without prejudice to [the] Penal Code, heads or staff of PEs
who, within the course of the public procuring proceedings,
breach this Law & regulations, are liable to punishable by 6
to 12 months of imprisonment & maximum fine of 500,000
RWF, or one of the two.
•May also be liable to penalties under the Law aimed at
prevention, suppression & punishment of corruption &
related offences, on Statutes of Rwanda Public Service as
well as by any other existing Laws & regulations in relating
to the code of ethics for civil servants & staff

49. 49
Article 176 Violation des procédures de passation de
marchés publics et les règles du code de conduite
Sans préjudice des dispositions du Code pénal, les
dirigeants ou les agents de l’entité de passation de
marchés qui, pendant le processus de passation d’un
marché, violent les dispositions de la présente loi et de ses
textes d’application, sont passibles d’un emprisonnement
de six (6) à douze (12) mois et d’une amende ne
dépassant pas cinq cent mille (500.000) francs rwandais
ou l’une de ces peines seulement.
Ils peuvent également subir des sanctions prévues par la
loi relative à la prévention et à la répression de la
corruption et des infractions connexes, la loi portant statut
général de la Fonction Publique Rwandaise ainsi que toute
autre loi en vigueur en rapport avec le comportement et la
conduite des agents de l’Etat et ses employés.

50. 50
Today we discussed
•Types of contracts
•Needs
•Contract checklists
•Dangers with MOUs
•Performance Guarantees
•Bid Rigging

51. Questions?