Procurement delays lead to $5.98b undisbursed ADB loans: Report

Procurement delays are among the key factors contributing to slow performance in development projects, resulting in a backlog of projects with undisbursed and uncontracted Asian Development Bank (ADB) loans amounting to $5.983 billion and $3.157 billion, respectively, as of February this year, according to an ADB report.

This signals inefficiencies in project implementation, which can have various adverse effects on development outcomes, economic growth, and public confidence, the report says.

According to a document from the Asian lender, the undisbursed balance of ADB loans to Bangladesh increased to 44.9% of the total amount as of 23 February 2024, up from 40.3% ($4.799 billion) on 10 March 2022.

The finding was outlined in an assessment of the ADB's portfolio status in Bangladesh.

Similarly, as of 23 February 2024, the uncontracted balance accounted for 23.7% of the total portfolio. Over the past year, implementing agencies have made limited progress in awarding contracts.

ADB data indicates that as of 10 March 2022, the uncontracted balance was 20% ($2.339 billion) of the total portfolio.

During the first two years of project implementation, overall Bangladesh investment loans have only 13% of the loan amount being contracted out and the infrastructure sectors contracted out only 11.5% of their total loan amount.

As for disbursement, only 6.7% of the total loan amount was disbursed and the infrastructure sectors disbursed only 2.7% of their loan amount, the global lender said in its background paper presented at the tripartite portfolio review meeting for ADB-funded projects in Bangladesh held on 6-7 March in Dhaka.

According to the ADB document, overall portfolio has been slow to exceed the original implementation period for most projects, especially infrastructure projects. One of the reasons is poor project readiness to result in slow procurement progress.

Most projects reached only 33.8% of contract award after the fourth year of project implementation, while the infrastructure sectors contracted out 29.6% of their loan amount. As for disbursement, only 22% of the total loan amount was disbursed and the infrastructure sectors disbursed only 14.6% of their loan amount in the first four years of implementation period.

ADB's ongoing portfolio in Bangladesh

As of 23 February 2024, the Bangladesh portfolio comprised $13.31 billion allocated across 56 projects spanning six sectors.

These sectors include eight projects in agriculture, food, nature, and rural development, 10 projects in human and social development, nine projects in energy, 11 projects in transport, 11 projects in water and urban development, and seven projects in finance, public sector management, and governance.

Notably, the transport and energy sectors collectively accounted for 42.4% of the total portfolio.

Additionally, as of 23 February 2024, there were 37 ongoing Technical Assistance (TA) projects valued at $56.4 million.

Over the past decade (2015 to 2024), Bangladesh's portfolio has experienced significant growth, increasing from $6.5 billion in 2015 to $13.8 billion in 2023, representing a compound annual growth rate of 9%.

In 2023, the portfolio amounted to $13.8 billion. In 2024, the ADB reported that a loan worth $443 million had been closed, while $30 million had been canceled.

2023 portfolio performance

As of 31 December 2023, contract awards reached $1,268.2 million (117.9%) against the annual target of $1,076 million, while disbursements amounted to $1,505.3 million (106.4%) against the annual target of $1,414.1 million. 

The ADB report highlights an improvement in 2023 performance compared to 2022.

Procurement lead time

ADB report said, the average procurement end-to-end times are: 218 days in 2020, 260 in 2021, 214 days in 2022, and 251 days in 2023.

In 2023, the ADB average end-to-end procurement time was 190 days and the South Asia regional department average (SARD) 224 days.

The end-to-end time for more than $10 million packages, which is 398 days – higher than 341 days in 2022. The average end-to-end procurement time for one stage and one envelope is 166 days, and for one stage and two envelopes is 401 days. The ADB average end-to-end procurement time was 310 days, while SARD countries has 344 days.

Challenges persist in energy, transport sectors

The ADB report highlights improvements in the agriculture, food, nature, and rural development, human and social development, and water and urban development sectors in reducing the time. However, challenges persist in the energy and transport sectors, where lengthy procurement processes are attributed to complex evaluation criteria, bid qualifications, specifications, pricing, clarifications, and approval structures.

Root causes for procurement challenges

The ADB document identifies several root causes for the prolonged procurement process, such as insufficient project preparation leading to low-quality designs and cost estimates, prolonged approval processes within the government system, and inadequate due diligence during bid evaluation. Additionally, requiring multiple rounds of clarification during ADB's review process further intensifies delays in procurement.

Recommendations

ADB has prioritised enhancing procurement readiness and has proposed five key steps for procurement preparation. 

These steps include utilising project readiness filters, facilitating project advancement, providing technical assistance, and implementing strategic procurement planning.

Additionally, ADB suggests improving strategic procurement planning by enhancing risk registers and establishing realistic procurement timelines, engaging qualified consultants, and utilising advance procurement where applicable.

ADB emphasises the importance of strengthening supervision and collaboration with executing and implementing agencies, organising project-specific procurement training workshops, monitoring procurement transactions exceeding $1 million, and expediting transactions.

Furthermore, ADB recommends taking swift actions to bolster the capacity of implementing agencies and contractors.