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Public procurement refers to the process by which government agencies and public entities obtain goods, services, or construction projects from external vendors. In Nepal, this process is governed by comprehensive legislation designed to ensure transparency, accountability, and efficiency in utilizing public funds while fostering fair competition. Understanding public procurement law in Nepal is essential for businesses seeking government contracts, public entities conducting procurement, and professionals involved in the procurement process. This guide covers the legal framework, procurement methods, bidding procedures, qualification criteria, tender fees, and compliance requirements.
What is Public Procurement
Public procurement is the process by which a public entity acquires goods, consultancy services, other services, or executes construction projects. The process commences with recognizing a specific requirement for a product or service and progresses through the bidding or negotiation phase, contract award, and delivery of goods or services. The purpose of public procurement law is to maximize the value of public spending by promoting competition, fairness, honesty, and accountability while improving procurement capabilities and ensuring equal opportunities without discrimination.
Legal Framework
Public procurement in Nepal is governed by comprehensive legislation enacted to enhance transparency, objectivity, and reliability in procurement processes.
| Legislation | Year | Purpose |
|---|---|---|
| Public Procurement Act | 2063 (2007) | Primary law governing public procurement procedures and decisions |
| Public Procurement Rules | 2064 (2007) | Protocol for procurement documents, plans, contract selection, and tenders |
Regulatory Authority
The Public Procurement Monitoring Office (PPMO) is the main regulatory authority for public procurement in Nepal. Its functions include monitoring procurement activities, providing guidance to public entities, simplifying procurement processes, establishing data banks, conducting research, and ensuring professional competence of personnel involved in procurement.
Key Definitions
Understanding key definitions under the Public Procurement Act is essential for compliance.
| Term | Definition (Per PPA) |
|---|---|
| Procurement | Acquisition of any goods, consultancy services, other services, or carrying out construction works by a public entity (Section 2(a)) |
| Goods | Goods of any kind, movable or immovable, living or non-living, including services incidental to supply (Section 2(c)) |
| Consultancy Services | Study, research, survey, design, drawing, supervision, training, testing, software development, or intellectual/professional service (Section 2(e)) |
| Other Services | Hiring of vehicles, equipment, or goods; carriage; repair and maintenance of goods (Section 2(f)) |
| Bid | Document setting out price, proposal, or rate submitted by a bidder in specified format (Section 2(g)) |
Public Entities Covered
The following entities must comply with public procurement law when acquiring goods, services, or construction works:
- Constitutional organs, courts, ministries, secretariats, commissions, departments
- Corporations, companies, banks, or boards owned/controlled by Government of Nepal
- Universities, colleges, research centers operated by government or receiving majority grants
- Local bodies
- Development boards formed under Development Board Act 1956
- Bodies operated with government loans or grants
- Other bodies specified by Government of Nepal in Nepal Gazette
Types of Procurement
Public procurement can be conducted through two primary methods:
Direct Procurement
Direct procurement under Section 41 of PPA involves acquiring goods, consultancy services, or construction work under specific conditions without following standard bidding procedures.
Indirect Procurement
Indirect procurement involves acquiring goods and services through competitive bidding processes including open bids at international or national levels, sealed quotations, and other prescribed methods.
Methods of Procurement
For Goods, Construction Works, and Other Services
| Method | Applicable Threshold |
|---|---|
| International Level Open Bidding | As prescribed under Section 15 of PPA |
| National Level Open Bidding | Above NPR 2 million (construction); Above NPR 1 million (goods/services) |
| Sealed Quotation | Up to NPR 2 million (construction); Up to NPR 1 million (goods/services) |
| Direct Procurement | Up to NPR 500,000 (construction); Up to NPR 300,000 (goods/consulting) |
| Users Committee/Beneficiary Group | Up to NPR 6 million |
| Force Account | As prescribed |
For Consultancy Services
- Competitive Proposal: Procurement by requesting competitive proposals from shortlisted consultants
- Direct Negotiation: Procurement through direct negotiations under specific conditions
Procurement Planning Requirements
Public entities must develop comprehensive procurement plans before initiating procurement proceedings.
Master Procurement Plan
Required for plans or initiatives exceeding one year duration or having annual value of NPR 100 million. The plan encompasses procurement method, competition provisions, type/quantity/estimated value, number of contracts, prequalification proceedings, and provisional schedule. Annual updates require secretary's consent.
Annual Procurement Plan
Required when annual procurement expenditures surpass NPR 1 million. Includes description, potential packages, timeline, procurement method, contract type, and other provisions. Must be transmitted to higher offices and Ministry of Finance.
Cost Estimate Requirements
For any procurement, a public entity must produce a cost estimate. However, cost estimates are not required for purchases not exceeding NPR 25,000. The cost estimate must be revised as required based on market conditions.
Bidding Procedure
The public procurement bidding process follows structured stages to ensure transparency and fair competition.
| Stage | Action | Details |
|---|---|---|
| 1 | Invitation to Bid | Open bids with or without prequalification determination |
| 2 | Prequalification (if required) | Prepare documents, invite proposals, select qualified applicants |
| 3 | Issue Bidding Documents | Provide documents to qualified/interested bidders |
| 4 | Pre-bid Conference | Conduct conference if necessary |
| 5 | Bid Submission | Bidders submit technical and financial proposals |
| 6 | Bid Opening | Open bids publicly at specified time |
| 7 | Bid Evaluation | Evaluate based on predetermined criteria |
| 8 | Contract Award | Award to lowest evaluated substantially responsive bid |
Qualification Criteria
For Goods Suppliers
- Technical capacity
- Expertise of technician for installation
- Assurance of smooth functioning for specific period
- Provision of repair and maintenance
- Availability of services and spare parts
- Skills, experience, and reliability of supplier
For Construction Entrepreneurs
- General experience as prime contractor
- Minimum average annual construction turnover
- Specific experience in similar construction works
- Economic and financial capabilities
- Qualified human resources
- Key items of equipment
For Consultancy Service Providers
- Experience (individual or institutional)
- Educational qualification and experience of key staff
- Mode of performance, responsiveness, technology transfer
- Managerial and financial capacity
- Participation of native human resources (for international proposals)
Tender Document Fees
Public entities charge fees for tender documents based on the value of procurement:
| Value of Tender (NPR) | Fee (NPR) |
|---|---|
| 1,000,001 to 6,000,000 | 1,000 |
| 6,000,001 to 60,000,000 | 3,000 |
| 60,000,001 to 100,000,000 | 5,000 |
| 100,000,001 to 2,500,000,000 | 6,000 |
| Above 2,500,000,000 | 10,000 |
Consultancy Services Procurement
A government entity may obtain consulting services when available workforce cannot undertake a particular task or when engaging a consultant is required under foreign aid-funded project agreements.
Selection Methods for Consultancy Proposals
| Method | Description |
|---|---|
| Quality and Cost Method | Evaluate both technical and financial proposals; select highest combined marks |
| Quality Method | Consider only technical proposal; select highest technical marks |
| Fixed Budget Method | Reject proposals exceeding budget; select highest technical marks within budget |
| Least Cost Method | Establish minimum technical score; choose lowest cost among qualifying proposals |
Conditions for Direct Procurement
Direct procurement without following standard bidding procedures is permitted under Section 41 of PPA in the following circumstances:
- Low-value procurement up to prescribed amount
- Only one supplier has technical efficiency to fulfill requirement
- Only one supplier has exclusive right to supply goods with no alternative
- Additional proprietary goods/services from existing supplier within prescribed limits
- Procurement between public entities or from international organizations
- Most necessary works not included in initial contract due to unforeseen circumstances
- Service of particular consultant with unique qualifications is immediately needed
Bank Guarantee Requirements
Upon signing the procurement contract, contractors must submit a bank guarantee to the public entity before initiating the project. The public entity can provide advance payment up to 20% of the contract amount upon receiving a bank guarantee from the supplier, construction entrepreneur, or service provider.
Variation Order Authority
| Variation Percentage | Issuing Authority |
|---|---|
| Up to 5% | Gazetted 2nd Class Officer or similar rank |
| Up to 10% | Gazetted 1st Class Officer or equivalent |
| Up to 15% | Departmental Head |
| 15% to 25% | Secretary of Ministry or equivalent |
| Above 25% | Council of Ministers, Government of Nepal |
Review of Procurement Decisions
Parties dissatisfied with procurement decisions have recourse through a structured review process.
Stage 1: Application to Chief of Public Entity
A bidder may apply within seven days from the date of knowing the error. The chief must make a written decision within five days of receiving the application.
Stage 2: Public Procurement Review Committee
If the chief does not make a decision or the bidder is dissatisfied, application can be made to the Review Committee within seven days. The committee makes a decision within thirty days.
Contract Termination
The public entity may terminate procurement contracts under the following circumstances:
- Supplier/contractor fails to meet contract terms or violates conduct guidelines
- Termination for convenience and public interest
- Termination by supplier, consultant, or contractor
- Termination due to force majeure
Blacklisting Provisions
Under Section 63 of PPA, the PPMO may blacklist a party for one to three years for:
- Committing acts contrary to Section 62 conduct guidelines
- Failing to enter into contract after being selected
- Substantial errors in contract implementation
- Conviction of disqualifying criminal offense
- Falsifying qualifications or providing misrepresentations
Consequence: Blacklisted entities are ineligible to participate in any public entity's procurement proceedings during the specified blacklisting period.
Dispute Resolution
Disputes concerning procurement contract execution between public entities and contractors are addressed through mutual consensus. If peaceful resolution cannot be reached, the matter is settled through arbitration in accordance with prevailing legal framework, as specified in the procurement contract.
Digital Procurement Platforms
Nepal has implemented digital tools to enhance transparency and streamline procurement:
- Electronic Government Procurement (e-GP) System: Centralized platform for bidder registration, tender announcements, bid submission, and contract management
- Public Procurement Monitoring Office (PPMO) Portal: Policies, guidelines, and standardized bidding documents
- Public Procurement Information Portal (PPIP): Procurement plans, awarded contracts, and performance data
Important: Public entities shall only procure from persons, firms, organizations, or corporations that have obtained VAT registration certificate and PAN from the Inland Revenue Department.
Need Legal Assistance?
Our legal team provides comprehensive public procurement law services including bid preparation, contract review, dispute resolution, and compliance advisory throughout Nepal. Contact us for professional consultation.
Frequently Asked Questions
| Legislation | Year | Purpose |
|---|---|---|
| Public Procurement Act | 2063 (2007) | Primary law governing procurement procedures |
| Public Procurement Rules | 2064 (2007) | Protocol for documents, plans, and tenders |
The Public Procurement Monitoring Office (PPMO) is the main regulatory authority.
Entities required to comply:
- Constitutional organs, courts, ministries, departments
- Government-owned corporations, companies, banks, boards
- Universities and research centers receiving government grants
- Local bodies
- Development boards
- Bodies operated with government loans or grants
| Method | Threshold |
|---|---|
| International Open Bidding | As prescribed under Section 15 |
| National Open Bidding | Above NPR 2 million (construction); NPR 1 million (goods) |
| Sealed Quotation | Up to NPR 2 million (construction); NPR 1 million (goods) |
| Direct Procurement | Up to NPR 500,000 (construction); NPR 300,000 (goods) |
| Users Committee | Up to NPR 6 million |
| Tender Value (NPR) | Fee (NPR) |
|---|---|
| 1,000,001 to 6,000,000 | 1,000 |
| 6,000,001 to 60,000,000 | 3,000 |
| 60,000,001 to 100,000,000 | 5,000 |
| 100,000,001 to 2,500,000,000 | 6,000 |
| Above 2,500,000,000 | 10,000 |
Suppliers must demonstrate:
- Technical capacity
- Expertise of technician for installation
- Assurance of smooth functioning
- Provision of repair and maintenance
- Availability of services and spare parts
- Skills, experience, and reliability
Required qualifications:
- General experience as prime contractor
- Minimum average annual construction turnover
- Specific experience in similar works
- Economic and financial capabilities
- Qualified human resources
- Key items of equipment
Direct procurement is allowed when:
- Value is below prescribed threshold
- Only one supplier has technical capacity
- Supplier has exclusive rights with no alternative
- Additional proprietary goods from existing supplier
- Procurement between public entities
- Unforeseen necessary works
- Unique consultant qualifications immediately needed
| Method | Description |
|---|---|
| Quality and Cost | Highest combined technical and financial marks |
| Quality | Highest technical marks only |
| Fixed Budget | Highest technical within budget ceiling |
| Least Cost | Lowest cost meeting minimum technical score |
Requirements:
- Contractor must submit bank guarantee before starting project
- Public entity can provide advance up to 20% of contract amount
- Bank guarantee required from supplier/contractor for advance payment
| Variation % | Authority |
|---|---|
| Up to 5% | Gazetted 2nd Class Officer |
| Up to 10% | Gazetted 1st Class Officer |
| Up to 15% | Departmental Head |
| 15-25% | Secretary of Ministry |
| Above 25% | Council of Ministers |
Review process:
- Stage 1: Apply to Chief of Public Entity within 7 days; decision within 5 days
- Stage 2: Apply to Public Procurement Review Committee if dissatisfied; decision within 30 days
Security must be furnished with review application.
Grounds for blacklisting (1-3 years):
- Acts contrary to Section 62 conduct guidelines
- Failure to enter contract after selection
- Substantial errors in contract implementation
- Criminal conviction involving moral turpitude
- Falsifying qualifications or misrepresentation
| Plan Type | Requirement |
|---|---|
| Master Procurement Plan | Projects exceeding 1 year or NPR 100 million annually |
| Annual Procurement Plan | When annual expenditure exceeds NPR 1 million |
Plans must include method, timeline, contract type, and estimated value.
Required documents:
- Tender instructions and form
- Bid bond format
- Performance guarantee format
- Advance payment guarantee format
- Procurement contract terms
- Specifications and design
- Work schedule
- Currency and payment terms
Dispute resolution process:
- First through mutual consensus
- If consensus fails, through arbitration as specified in contract
- Arbitration conducted under prevailing legal framework
- Contract must specify dispute resolution mechanism
