Procurement Bidding Dispute Resolution in Nepal

Legal Framework

The Public Procurement Act, 2063 (2007) and Public Procurement Regulations, 2064 (2008) establish the primary legal framework for procurement dispute resolution in Nepal. The system provides a multi-tiered review mechanism designed to protect bidder rights while ensuring accountability in public procurement decisions.

Three-Tier Review Mechanism

Nepal’s procurement dispute resolution follows a structured three-stage process:

Stage 1: Review by Chief of Public Entity (Section 47, PPA)

A bidder or proponent may file an application before the chief of the concerned public entity for review against any error or decision. The application must be filed within seven days from the date the bidder becomes aware of the public entity’s error or breach of duty.

Key Requirements:

• Application must state the commission or omission of an act by the public entity that led to the error
• Specific provision of the Act, Regulations, or guidelines contravened must be identified
• The chief must make a written decision within five days of receiving the application
• If an error is found, procurement proceedings are suspended

Limitation: Applications are limited to proceedings prior to contract execution only.

Stage 2: Public Procurement Review Committee (Sections 48-51, PPA)

If dissatisfied with the chief’s decision, or if no decision is made within the prescribed period, bidders may appeal to the Review Committee.

Committee Composition:

• Chairperson: Former Appellate Court Judge or Special Class government retiree
• Member 1: Retired Gazetted First Class Nepal Engineering Service officer
• Member 2: Procurement expert (not currently employed by any Public Entity)
• Three-year tenure, extendable for one additional term

Application Timeline:

• 7 days for cases under Section 49(a) (no decision or unsatisfied with chief’s decision)
• 30 days from contract conclusion for cases under Section 49(b)

Review Process:

1. Committee notifies the public entity within 3 days of receiving application
2. Public entity provides information and comments within 3 days
3. Committee makes decision within 30 days based on evidence and hearings

Possible Decisions:

• Dismiss the application (security forfeited)
• Order the public entity to correct unauthorized acts or procedures
• Annul unauthorized decisions
• Order re-evaluation of bids if errors found
• Recommend quantum merit payment if contract was improperly awarded

Security Requirement: Applicants must deposit prescribed security, which is forfeited if the application is dismissed.

E-GP Complaint Filing System

The Public Procurement Monitoring Office (PPMO) operates an electronic complaint system through the National Electronic Government Procurement (e-GP) platform.

Procedure:

1. Access procurement execution → Complaint Lodge → Create
2. Select tender (for technical evaluation completed only)
3. Upload authorization letter, reason for application, and supporting documents
4. Submit complaint within period specified in PPA/PPR

Important Features:

• System restricts duplicate submissions
• Public entities must reply within stipulated timeframe
• Financial opening is blocked until complaints are resolved
• Public entities must consult PPRC before financial opening if review applications exist

Contract-Level Dispute Resolution (Section 58, PPA)

Once a procurement contract is awarded, disputes between the public entity and contractor/supplier/consultant are resolved through a two-tier mechanism:

Tier 1: Amicable Settlement

• Parties must first attempt to settle disputes through mutual agreement
• Standard Bidding Documents typically specify a 30-day negotiation period

Tier 2: Arbitration

• If amicable settlement fails, disputes are resolved through arbitration under prevailing laws
• The First Amendment (2022) made arbitration mandatory for unresolved disputes
• Arbitration is conducted under the Arbitration Act, 2055 (1999)

Arbitration Clauses Typically Include:

• Notice of dispute requirements
• 30-day negotiation period
• NEPCA or UNCITRAL-based arbitration rules
• Continuation of contract performance during arbitration

Arbitration Institutions in Nepal

Nepal Council of Arbitration (NEPCA)

• Established in 1991 as non-profit organization
• Administers arbitration under NEPCA Rules 2060 (2003)
• Value-based fee structure linked to dispute amount
• Case management provisions including phased proceedings and document-based decisions

Nepal International ADR Centre (NIAC)

• Founding member of Asia-Pacific Center for Arbitration and Mediation (APCAM)
• Provides arbitration, mediation, and training services
• Secretariat in Kathmandu with regional reach

Key Judicial Principles

The Supreme Court of Nepal has established several important principles regarding procurement arbitration:

1. Separability Doctrine: Arbitration clauses are independent from main contracts (Yakshyadhoj Karki v. High Court Patan, 2076 BS)
2. Exhaustion of Remedies: Parties must exhaust arbitration before approaching constitutional writ jurisdiction (Ramesh Bhomi v. Appellate Court, Patan)
3. Procedural Compliance: Failure to initiate arbitrator appointment within statutory periods can invalidate arbitration (Rajendraman Sherchan v. Appellate Court, Patan, 2064 BS)

Practical Challenges and Recommendations

Common Issues:

• Ambiguous contract clauses in Standard Bidding Documents
• Delays in arbitrator appointment by government entities
• Enforcement challenges against public entities
• Budget constraints preventing payment of awards
• Low-bidding practices creating disputes (30% below estimate threshold concerns)

Recent Developments:

• March 2025 amendments to Arbitration Act introduced fast-track arbitration (Section 13A)
• Removal of “dispute resolution panel/board” provisions in 2022 amendment
• 14th Amendment to Public Procurement Rules created restrictive views on contract variations

Summary Table: Complete Dispute Resolution Pathway

This comprehensive framework ensures that procurement disputes in Nepal can be resolved through administrative, alternative, and judicial mechanisms depending on the nature and stage of the dispute.