Ethiopia introduced a new Federal Public Procurement and Property Administration Proclamation No. 1333/2024 (“New Proclamation”), which repealed and replaced Proclamation No. 649/2009. (“Repealed Proclamation”). The New Proclamation regulates traditional procurement methods and aims to ensure that public bodies conduct transparent and competitive procurement processes. It also governs how public property is administered and disposed of. In our latest Insights piece, we examine the various additions and amendments introduced by the New Proclamation, focusing on the procurement aspect of the new law.
Public Procurement v PPPs
Public procurement of goods and services follows a dual system of governance. The traditional procurement process, which applies to goods and services procured by public bodies, is regulated by a public procurement legislation. On the other hand, public procurement through Public-Private Partnerships (PPP) is governed by a specialized legal framework, designed to address the unique nature of PPP projects and their financing structure. This separation is meant to ensure that traditional procurement and PPP models are managed according to their respective legal and procedural requirements. (For more on the PPP mode of public procurement, find our PPP insight series here).
While the New Proclamation has fully removed previous provisions related to the procurement of PPPs, it grants a special mandate to the Federal Public Procurement and Property Authority (“Authority”) to undertake compliance and performance audits and in cases of misconduct, suspend PPP procurements. Further, the Authority is empowered to receive complaints related to the procurement of PPP projects. This introduces a layer of complexity with the existing PPP complaint handling regime that mandates the PPP Directorate General and the PPP Board as the relevant authorities to handle PPP-related complaints. However, as both the PPP and public procurement regimes fall under the auspices of the Ministry of Finance, implementing these overlapping mandates will be clarified when the laws are tested in practice.
Inclusion of State-Owned Enterprises (SOEs)
The preamble of the New Proclamation provides that one of the rationales for the enactment of the proclamation is to expand the scope of application of the law beyond public bodies and regulate state-owned commercial entities (SOEs or public enterprises). Previously, the scope of application of the public procurement law was limited to public entities wholly or partially financed by the federal government budget, excluding SOEs. The New Proclamation expands this scope to include both public bodies and federally owned SOEs. By explicitly defining public bodies to include federal SOEs and public entities, the New Proclamation brings SOEs and public entities under a unified procurement framework.
However, it’s important to note that the definition of SOEs under the New Proclamation is markedly different from the definition under the recently enacted SOE Proclamation No. 1314/2024. The New Proclamation defines SOEs as wholly government-owned enterprises established under the SOE Proclamation. On the other hand, the SOE Proclamation considers SOEs to mean more than wholly owned public entities and may include a) majority government-owned business organizations, b) business organizations formed by the conversion of a wholly state-owned enterprise into a share company and c) organizations in which the state holds a golden share or exercises effective control while holding minority share in an enterprise. Here it can be seen that the New Proclamation scope as it relates to SOE is limited to those SOEs that are wholly owned by the federal government, excluding those other ownership scenarios provided by the SOE Proclamation. Whether this is a deliberate differentiation or an error in legislative drafting is not clear.
The inclusion of SOEs under the public procurement regulatory regime introduces a number of compliance requirements for SOEs, potentially limiting their flexibility in procurement while ensuring transparency and accountability. Further, SOEs will now fall under the regulatory oversight of the Authority. However, noting the commercial nature of the SOEs, the New Proclamation provides that a special Directive will be issued to regulate the procurement of goods and services by SOEs. Until such a Directive is issued, SOEs will continue to be governed by their own existing internal procedures. To what extent the Directive will allow SOEs to deviate from the procedures of the New Proclamation remains to be seen when the new directive is issued.
Local Participation
Goods produced in Ethiopia, works performed and consultancies provided by Ethiopian nationals were previously granted a preference margin during bid evaluations. These provisions aimed to support local industries by shielding them from competition with larger, financially stronger international firms. The New Proclamation broadens the scope of local companies eligible for preference margins in bid evaluations. Previously, this benefit was limited to Ethiopian nationals. Now, it extends to consortiums, partnerships, or joint ventures between domestic and foreign enterprises, enterprises owned by persons with disabilities and women, and products arising from technological innovations. Additionally, the proclamation introduces provisions for exclusively earmarking bids for manufacturing industries that promote job creation. The New Proclamation has also removed the 35% value addition threshold previously required for goods to qualify as locally produced. Instead, the determination of value addition will now be determined by a directive to be issued in the future.
Electronic Procurement
The New Proclamation mandates the Ministry of Finance to establish an electronic public procurement system and direct public bodies to adopt the system. The electronic system aims to streamline procurement activities by supporting key activities, including procurement planning, bid submissions, evaluations, appeals, and contract administration. The documents processed electronically will have a binding legal effect.
New Procurement Modalities
Previously, public bodies were required to adopt open competitive bidding as the primary procurement method. On the other hand, the New Proclamation allows public bodies to select procurement modalities that best ensure maximum value for public funds. While previous procurement modalities remain largely unchanged—comprising requests for proposals, two-stage bidding, restricted tendering, requests for quotations, and direct procurement, the New Proclamation amends some modalities and adds new ones. For instance, Framework Contracts were previously managed by the Authority, which was responsible for identifying common user items, entering into agreements with suppliers, and facilitating procurement for public bodies. The New Proclamation shifts responsibility for contract management to public bodies. While the Authority retains the power to establish Framework Agreements with suppliers, public bodies will now handle the contract directly. This includes entering into detailed call-off contracts with suppliers and managing all aspects of contract execution.
Further, the New Proclamation introduces the concept of joint procurement, allowing two or more public bodies to collaboratively procure items of common need. This excludes goods, non-consulting services, and properties designated by the Authority for centralized procurement or framework agreements, which are periodically updated. Under joint procurement, participating public bodies collectively manage the process and enter contracts with the winning bidder.
New procurement modalities recognized under the new law include Lease Procurement, which allows public bodies to lease equipment or properties instead of outright purchases: Own Force Account Procurement, enabling the use of internal workforce and resources for projects instead of external contractors: and Turnkey Procurement, applied when it is deemed feasible and beneficial to procure all project components under a single tender rather than separately.
Procurement Between Public Bodies
The New Proclamation restricts SOEs from engaging in non-competitive procurement processes unless explicitly allowed by a Directive to be issued. It provides that SOEs cannot participate in procurement by a public body to which the SOE is accountable, or in procurement by another public body which is accountable to the same entity, without undergoing a competitive process. SOEs are accountable either to the Ethiopian Investment Holdings (EIH) or the Ethiopian Public Enterprises Holding and Administration (PEHA), and the restrictions herein apply to procurements involving their subsidiary entities.
Sustainable Procurement
The New Proclamation introduces sustainable principles in public procurments. It requires public bodies to integrate sustainability criteria into their procurement processes, such as favouring products and services that have lower environmental footprints, are energy-efficient, or are sourced from suppliers that adhere to ethical labour practices. It also encourages reuse, recycling, and proper disposal of public assets.
Pre-qualification Requirements of Candidates
The New Proclamation introduces new requirements for candidates participating in public procurement. Key changes include:
- Prohibiting procurement of items originating from countries under UN trade sanctions or with suspended trade relations.
- Mandating candidates to avoid conflicts of interest as defined in the proclamation or future directives.
- Requiring ex-employees of the procuring public body to wait at least one year before becoming eligible candidates.
Additionally, foreign companies with no business operation in Ethiopia are expected to have a business license and certificate of registration authenticated by the Embassy of Ethiopia in the country where the company is licensed or registered.
Expanded Duties and Responsibilities of Public Bodies
The New Proclamation assigns additional responsibilities to the heads of public bodies, including addressing audit irregularities, delegating procurement activities (excluding procurement plans), endorsing procurements, authorizing direct procurement, resolving complaints, and ensuring timely public dissemination of information. Procurement and property administration units, previously responsible for executing public procurement, now focus on preparing annual procurement plans, devising strategies for costly project-related procurements, disposing of assets, managing contract administration, and maintaining supplier and buyer performance records.. Further, the Authority is assigned with additional responsibilities of reporting defaults to the Ministry of Finance, preparing a code of conduct, publishing public documents and decisions, conducting studies, regulating the electronic procurement system, and managing unclaimed federal government property.
On Appeal
Previously, a board constituting representatives from the government, SOEs and the private sector used to handle complaints. Under the New Proclamation, a Board of Appeal is established as a quasi-judicial and impartial body with extensive powers to handle appeals related to public procurement and property disposal. Further, the new proclamation provides the number and composition of Board members to include representatives from the Ministry of Justice, the business sector, professional and civic associations, and relevant public bodies. The Board under the New Proclamation has more robust powers compared to the previous one, empowered to summon witnesses and relevant parties, suspend procurement proceedings, conduct personal investigations and reject appeals presented to it.
Further, the New Proclamation enhances the appeals process by allowing candidates to challenge a public body’s response to bid document modifications or clarifications before bid opening and dispute large procurement authorizations. Appeals against board decisions can be taken to court. The board is also empowered to correct its own decisions if errors or false evidence influence the outcome.
Additionally, the New Proclamation revises the timeframes for reviewing appeals. The time for submitting proposals by suppliers to the head of the Public Body and the Board Secretariat has been extended from 5 working days to 7 working days. The Board Secretariat’s timeframe to issue a decision has been extended from 15 working days to 21 working days. However, these timeframes apply until the electronic procurement system is fully operational. The New Proclamation also expands the list of non-appealable matters.
Conclusion
The New Proclamation introduces notable changes to Ethiopia’s public procurement system including the inclusion of SOEs under the procurement framework with mandatory compliance requirements, the adoption of an electronic procurement system, expanded eligibility for preference margins and the removal of the 35% value addition threshold for locally produced goods. It also introduces new procurement methods such as lease procurement, own force account procurement, and turnkey procurement. Detailed rules and procedures are expected to be regulated through directives to be issued by the Ministry of Finance in due course, providing further clarity and guidance.
