FC 108/20

Finance Committee

Hundred-and-eighth Session

Rome, 27 September – 1 October 2004

Procurement undertaken by FAO for the Regional Development Banks

Table of Contents

I. Introduction

1. This document requests the Finance Committee’s guidance on the issue of restrictions on the nationality of potential suppliers for procurement activities.

2. Manual Section 502.112 “Procurement of Goods, Works and Services” provides that “the principal objective of the procurement activities is the timely acquisition of goods, works or services to ensure the effective and efficient use of resources, in a competitive and transparent manner”. The Manual Section (502.113) further states that “to the extent compatible with the above objective, procurement activities should also: …(ii) give due consideration to the importance of attaining an equitable distribution of procurement sources while encouraging developing economies” and that (MS 502.341) “bids should be requested from as many potential suppliers as practicable but in any case no less than three and should to the extent feasible by the nature of the procurement action, represent a diverse international geographical distribution of firms”.

3. To implement these principles, the Organization has consistently adhered to a policy of not accepting restrictions on the nationality of potential suppliers except for the long-standing practice of not procuring from nationals of non-FAO Member Nations, if reasonable alternative sources of procurement are available from suppliers from Member Nations.

4. Recently, there have been cases when regional multilateral institutions have requested that procurement activities for inputs or services undertaken in connection with projects funded by them be restricted to suppliers who are nationals of the member nations of such institutions. In some instances, the interested regional institution has stated that, without such restrictions, it would not be in a position to fund the project.

II. Considerations

5. The Organization is committed to ensuring that its procurement activities under funding from the Regular Programme and extra-budgetary resources are efficient, cost effective, transparent and competitive, and the introduction of such restrictions, if significant, could have a negative impact on these basic procurement principles by limiting the Organization’s ability to procure inputs and services from the most cost effective suppliers.

6. Refusal by the Organization to accept such restrictions in projects funded by such donors may, on the other hand, effectively curtail the Organization’s capacity for leveraging additional resources, particularly as regional multilateral institutions have shown strong interest in supporting FAO’s policies and strategies, particularly in the framework of food security in its member countries. The Organization’s capacity to extend the policies decided by its Governing Bodies will thus be severely curtailed as the potential for significantly increasing extra-budgetary contributions is through reaching cooperation agreements with such regional multilateral institutions.

III. Conclusion and Decision Sought

7. Given the importance of maintaining the Organization’s independence in implementing its procurement activities and ensuring its ability to procure goods in a manner consonant with sound procurement principles; Fully recognizing that non-acceptance of such restrictions may result in substantially limiting the Organization’s scope for accessing extra-budgetary contributions that are indispensable for implementing the Strategic Framework and result in the refusal of some regional institutions to fund projects to be implemented by FAO; the Finance Committee’s guidance is requested on the following issue:

8. Whether the Organization should consider application of restrictions on the nationality of potential suppliers set by the donors for the procurement of goods, works and services in the case of projects funded by multilateral financing institutions and whether such restrictions will only be accepted if there is a significant number of countries to allow valid competition.