This Bank Procedures statement should be read together with the Operational Memorandum, Project Restructuring: New Procedures (Revised), dated November 8, 2009. This BP was revised March 2012 to take into account the provisions of OP/BP 9.00, issued in February 2012; and previously revised in April 2007 consequent to the issuance of OP/BP 12.00, Disbursement, and OP/BP 10.02, Financial Management. Previously revised in September 2006 to reflect new procedures for project restructuring which apply to all restructuring proposals submitted for Board or RVP approval on or after July 1, 2006.
Note: OP and BP 13.05 apply to loans, credits, Project Preparation Facility advances, guarantees, grants from IBRD net income and IDA resources, activities financed under trust funds that cofinance projects, and Global Environmental Facility (GEF) grants larger than US$ 1 million. They do not apply to GEF projects executed by organizations identified by the GEF Council as eligible to work with the GEF through expanded opportunities for project preparation and implementation (such organizations include, inter alia, regional development banks and UN agencies such as FAO and UNIDO); for such operations and for GEF grants of US$ 1 million or less, see the forthcoming OP/BP 10.20, Global Environment Facility Operations, or contact ENV. For supervision of grants, see OP/BP 8.45, Grants, or contact TFC. For trust fund grants, see OP/BP 14.40, Trust Funds, or contact TFC. Project closing dates are covered in OP/BP 13.30, Closing Dates; and issues of additional financing and use of project cost savings, which may arise during supervision, are covered in OP/BP 13.20, Additional Financing for Investment Lending, and OP/BP 13.25, Use of Project Cost Savings, respectively.
OP and BP 13.05 replace OD 13.05, Project Supervision, and the Operational Memorandum Procedure for Submission of Amendments to Legal Agreements, 1/31/96; they also draw on the Operational Memoranda Responsibilities of MDs and RVPs, 3/11/96, Board Documents: Reduced Frequency of Issuance, 5/31/94, and Use for Imported Goods, 12/12/90. For guidance on, and answers to specific questions about, supervision, staff should contact email@example.com.
Revised March 2012
1. Responsibility for supervision of a Bank-financed project rests with a task team (TT) assigned to the project.1 The TT includes Regional staff designated by the Region, as well as a lawyer and finance officer designated by their vice presidential units. The team leader (TL) serves as the Bank's principal point of contact for the borrower.
Planning for Supervision
2. Preparation for supervision begins during project preparation,2 when the TT and borrower staff agree on arrangements for project implementation, including
(a) monitoring and evaluating of progress in project implementation and achievement of development outcomes, with a common set of criteria to be used for project monitoring and evaluation;
(b) the use of results frameworks, performance indicators, and associated outcome targets (the latter reflected in, or derived from project development objectives and performance indicators);3 and
(c) the reports--such as audit reports, Interim Financial Reporting (IFR)4 and other reports required for effective project monitoring, evaluation, and disclosure--to be provided by the borrower, along with their outlines, content, and format.
The TT ascertains that the borrower has included the agreed arrangements in the Project Implementation Plan (PIP).5
3. The TT develops, and agrees with the borrower on, an overall plan for Bank supervision of the project. The supervision plan summarizes the key areas on which supervision will focus, especially the critical risks to project success, and outlines how those risks will be monitored during project implementation. It also records the project implementation arrangements agreed with the borrower.
4. If the TT has identified any inadequacies in the borrower's arrangements for implementation, it works with borrower staff to develop an action plan to remedy the deficiencies, identifying the actions required and the timeframe for their completion.6
5. The TT summarizes the arrangements for implementation and supervision in the Project Appraisal Document (PAD).
6. Once the loan is approved by the Bank, the TL ensures that supervision priorities for the coming year are clearly defined and consistent with the PIP and the supervision plan. The TT prepares the initial Implementation Status and Results Report (ISR)7 and the initial report for the Audit Reports Compliance System (ARCS).8
7. The TL provides copies of the PAD, the project legal agreements (including supplemental letters), and agreed minutes of negotiations to borrower staff responsible for implementation. The TL also confirms any remaining actions required before effectiveness and advises the borrower on the desirability of completing them expeditiously.
8. As appropriate, the TT conducts project launch workshops with the borrower to reemphasize the project's development objectives and clarify project requirements in such areas as procurement, disbursement, financial management, and environmental and social safeguards.9
9. During project implementation, the TT regularly
(a) monitors progress in all substantive aspects of the project against the targets, development objectives, and performance monitoring indicators set out in the PAD and PIP;
b) monitors procurement implementation and disbursement, recommending ways to ensure that procurement activities and loan disbursements proceed smoothly in line with the planned schedule;10
(c) reviews the interim and annual audited statements and other project progress reports submitted by the borrower;11
(d) ascertains the extent of compliance with loan covenants, including those related to environmental and social safeguards;
(e) assesses risks to successful implementation, operation, and sustainability of the project; and
(f) reviews the continued relevance of the project to borrower and Bank priorities.
10. As appropriate, the TT visits the project sites and facilities to review progress, provide advice, meet with project beneficiaries and stakeholders, perform sample reviews of the documentation supporting disbursement,12 review Interim Financial Reporting, carry out ex post reviews of procurement, and obtain additional information.13
11. The TT updates the ISR at least once every twelve months and whenever there are significant supervision findings.
Implementation Issues/Performance Problems
12. As important implementation issues arise, the TT discusses them, as well as the solutions it recommends, with the country director and sector manager. When a problem arises during project implementation that affects more than one project (e.g., counterpart fund availability or procurement regulations), the TT flags it for attention at a Country Portfolio Performance Review, or at any other opportunity for the borrower and Bank management to discuss portfolio issues.14
13. If the TT notes any significant deviations from the provisions of the PAD and the PIP, it discusses with the borrower the steps required to get the project back on track. If the TT determines that the borrower is not complying with covenants set out in the legal agreements, it works with the borrower to remedy the situation.15 Before exercising contractual remedies,16 the TT normally seeks to obtain compliance through dialogue with the borrower; this dialogue may be supplemented by letters from Regional management prepared in consultation with the lawyer and other concerned staff.
14. Bank staff use appropriate portfolio management tools to help improve the performance of projects under supervision. If the Bank's project rating system indicates that a project is a potential problem project, the TT provides more intensive supervision until the status improves.17 When the TT places a project in problem status, it actively works with the borrower to address the situation, assisting the borrower to revise the PIP and, where appropriate, restructuring the project.18 The TT may, as appropriate, pursue the Bank's contractual remedies.
15. In addition to regular supervision activities and periodic site visits, it may be useful to carry out (a) an early review after the first year of project implementation, to help avoid delay in identifying and resolving implementation problems; and (b) a comprehensive midterm review--an exercise generally held at project midpoint, during which representatives of the Bank and the borrower reassess the project's original development objectives, their relevance in light of new circumstances, and the likelihood of achieving them.
Project Restructuring and Other Project Changes
16. During project implementation, if priorities or circumstances surrounding the project change, it may be desirable to introduce corresponding changes in the project, its design, or the implementation arrangements (for example, administrative, organizational, procurement, financial, environmental management, or resettlement arrangements, or the timing of agreed actions). The TL discusses any proposed change with the borrower and consults with the lawyer to determine how to effect the change, including any required modifications to the legal agreements. If the change may involve Bank policies such as those concerned with financial management, procurement, or environmental and social safeguards, the TL consults with the responsible specialists in the Region.
17. Upon receipt of a written request from the borrower for the change, the country director, in consultation with the TL and the lawyer, determines whether the change is significant (requiring a project restructuring) or minor.19
18. Project restructuring refers to introduction of significant changes in the project.21 Project restructuring falls into one of two types:
(a) first-order restructurings that involve changes to project development objectives and/or associated outcome targets: All such restructurings are approved by the Executive Directors under the absence-of-objection procedures; and
(b) second-order restructurings that do not involve any changes to project development objectives or associated outcome targets: All such restructurings are approved by the Regional vice presidents (RVPs).22
19. For project restructurings, a reappraisal may be required to confirm that the project, as modified, is still justified, the requirements of the Bank's policies are met, and the implementing arrangements are still satisfactory. In some cases, these changes may require amendments to the legal agreements; in other cases, they may, pursuant to the terms of the legal agreement, be effected by notice to the borrower or by a waiver of a provision of the legal agreement. 23
Processing and Documentation:
20. For all project restructurings:
(a) The TL prepares the Project Paper24 providing background information and justification for the Bank's continued support of the project, including a reexamination of project assumptions and risks. The Project Paper also sets forth the reasons for the recommended changes and clearly describes them, as well as new arrangements for project implementation, and other measures taken, if any. The Project Paper includes any relevant technical, economic, fiduciary, safeguards, and other due diligence analysis, as well as changes to costs/benefits and the financing plan. It also indicates whether a closing date extension will be necessary to complete the restructured project. If the change may be effected by a waiver or notice, the TL also drafts the waiver or notice.
(b) The lawyer reviews the documents and either (i) drafts any necessary amendments to the legal agreements, or (ii) if the change may be effected by waiver or notice, clears the draft waiver or notice prepared by the TL.
(c) The TL circulates the Project Paper and any draft amendment, waiver, or notice to the finance officer and, for GEF grants, the GEF Regional Coordinator for review and clearance. The TL also consults other concerned Bank units (e.g., Regional procurement specialist, financial management specialist) if the change affects their areas of competence.
(d) Where amendments to the legal documents are required, the lawyer finalizes the amendments to the legal agreements, and with the TL reaches agreement on them with the borrower.
(e) The Project Paper (and a one-page MOP in cases of restructurings requiring Board approval) are submitted to the appropriate approval authority: Executive Directors for first-order restructurings or the RVP for second-order restructurings (see para. 18).
(f) Project Papers are publicly available following the approval of the proposed restructuring, in accordance with procedures that apply to disclosure of PADs.
(g) Both first-and second-order restructurings are institutionally recognized by IEG upon project exit.
Minor Project Changes
21. Minor project changes25 are submitted to the country director for approval:
(a) The TL prepares a brief memorandum to the country director providing background information and setting forth the reasons and justification for any amendments and a description of the changes. If the change may be effected by a waiver or notice, the TL also drafts the waiver or notice.
(b) The lawyer reviews the memorandum and drafts any necessary amendments to the legal agreements, or clears the draft waiver or notice.
(c) The TL circulates the memorandum and the draft amendment, waiver, or notice to the finance officer and, for GEF grants, the GEF Regional Coordinator for review and clearance. The TL also consults other concerned units if the change concerns their areas of competence.
(d) The TL submits the package to the country director for approval. Once the country director signs the amendments to the legal agreement, waiver, or notice, the amendments are sent to the borrower for agreement and countersignature; waivers and notices are sent to the borrower for information.
Information Reported to Executive Directors
22. All changes, including those that do not require Board approval, are recorded in the Report to the Executive Directors on Bank and IDA Operations - in addition, documents (a Project Paper) that set out changes associated with a project restructuring approved by RVPs are circulated to the Executive Directors for information.
23. At the time of project completion, Bank and borrower staff (in consultation with any cofinanciers/donors) prepare an Implementation Completion Report (ICR) that measures the project's degree of success in meeting its implementation and development objectives and reviews and records the lessons learned from the experience.26 The Independent Evaluation Group (IEG) reviews ICRs and writes evaluative notes on each one; also, it conducts audits of selected operations to evaluate project success and supervision quality. Bank supervision of a project normally ends with the ICR, except that the TT continues to monitor receipt of, and review, audit reports covering the year during which the last disbursement is made from the loan.27 However, in special cases the country director and sector manager may decide to continue supervision beyond project completion for defined periods.28
Supervision for and by Other Agencies and Institutions
24. Arrangements for the involvement of cofinanciers in the supervision of Bank-financed projects are covered in OP/BP 14.20, Cofinancing, and may also be covered in the provisions of any agreements between the Bank and such cofinanciers.
25. When the Bank supervises projects financed entirely by bilateral or multilateral donors (such as the United Nations Development Programme or the International Fund for Agricultural Development), the Bank uses the same supervision standards as for Bank-financed projects. The Bank informs the donor about the project, any problems that arise, and planned supervision missions. The Bank also provides the donor with a copy of supervision reports and participates in periodic meetings with the donor and the borrower.29
26. The Regional vice president is responsible for the performance of the Regional portfolio of projects, and the country director is responsible for the performance of the country portfolio. The country director and sector manager oversee the supervision process for individual projects, and are jointly responsible for ensuring the overall quality of the TT's supervision work.30 The country director and sector manager also ensure that the TT has adequate resources and the correct skill mix31 to supervise the project effectively. Sector Boards are available through sector staff to assist the TT and, where appropriate, they may become involved directly with the TT in dealing with special technical issues and risks.32
"Bank" includes IBRD and IDA; "loans" includes IDA credits and IDA grants, and, as the context may require, Project Preparation Facility advances, guarantees, and GEF grants of more than US$ 1 million; "project" includes investment lending and guarantee operations, grants from IBRD net income and IDA resources, activities financed under trust funds that cofinance projects, and GEF operations of more than US$ 1 million and does not include operations supported by development policy lending (for information on development policy lending, see OP/BP 8.60, Development Policy Lending), and operations supported by Program-for-Results financing (see OP/BP 9.00, Program-for-Results Financing); "legal agreement" includes, as applicable, Loan Agreement, Development Credit Agreement, Guarantee Agreement, Project Agreement, PPF Agreement, the Grant Agreement for grants from IBRD net income and IDA resources, and the GEF Grant Agreement for grants of more than US$ 1 million; and "borrower" includes, as the context may require, an entity responsible for implementation of all or part of a project or a recipient of a GEF grant of more than US$ 1 million. See OP/BP 10.00, Investment Lending: Identification to Board Presentation. See OP/BP 10.02, Financial Management. See Annex B, Elements of a Project Implementation Plan. Such actions may include, for example, (a) establishment of appropriate organizational arrangements, including adequate financial management systems; (b) appointment of key staff and consultants; and (c) arrangements for counterpart funding and onlending arrangements. The TT also discusses with the borrower steps required for timely loan signing and effectiveness, including the authorizations required, preparation of legal opinions, etc. See BP 13.00, Signing of Legal Documents and Effectiveness of Loans and Credits, OP/BP 10.00, Investment Lending: Identification to Board Presentation, and OP/BP 10.02, Financial Management. Supplementary advice to staff on good supervision practice is provided in Guidelines for Project Supervision, which also describes the ISR for loans, and for GEF grants of more than US$1 million. Advice to staff regarding ISRs for guarantees, which use a somewhat different format, is provided in Guarantee Guidelines (forthcoming). See OP/BP 10.02, Financial Management. Procedures for monitoring project financial management are set out in detail in BP 10.02, Financial Management. See OP/BP 12.00, Disbursement. See OP/BP 13.16, Country Portfolio Performance Reviews. This section applies to noncompliance with covenants unrelated to loan payments. Noncompliance related to loan payments is covered under OP/BP 13.40, Suspension of Disbursement. The contractual remedies available to the Bank include (a) partial or total suspension of disbursements, and subsequent cancellation of the loan or part of the loan (see BP 13.40, Suspension of Disbursements, and OP/BP 13.50, Cancellations ) and (b) "acceleration of maturity." The events that can give rise to these remedies are set out in the relevant General Conditions (Sections 6.02, 6.03 and 7.01); additional events may be specified in individual loan agreements. A project is considered to be a potential problem project if it is rated in the Implementation Status and Results Report as satisfactory for Implementation Progress and Development Objectives but has risk factors historically associated with unsatisfactory outcomes. A project is in problem status if it is rated in the Implementation Status and Results Report as unsatisfactory for either Implementation Progress or Development Objectives; for further information, staff may consult the Guidelines for Project Supervision. For GEF Grants, the country director also consults with the GEF Regional Coordinator, who may need to refer the proposed amendments to the GEF Secretariat for a determination whether the proposed restructuring should be submitted to the GEF Council.
Examples of significant project changes requiring project restructuring include: a change in the project's objectives, a change in the project scope or design, a major reallocation of funds among existing or towards new project components, and/or changes/additions to environmental or safeguard categories.
At the discretion of the RVP, such restructurings may also be submitted to the Board for approval under the absence-of-objection procedures .
For example, a one-time waiver in procurement procedures for a particular situation.
- Examples of minor project changes: renaming of implementing entities, agreed revision of reporting schedules or formats, or changes in the specification of project outputs that have no significant impact on the project.
Project completion is normally six months prior to loan closing. For operations in a series, such as adaptable program loans and sequential development policy loans, ICRs are prepared sufficiently prior to the completion date to provide critical input for appraisal of the subsequent loan or loans. For details on ICR preparation, see the preparation of Implementation Completion Memoranda for trust funds, see OP/BP 14.40, Trust Funds. For example, when there are concerns about implementation of resettlement action plans required under legal agreements; see OP/BP 4.12, Involuntary Resettlement. Supervision of guarantees may be required as long as they remain in force; see BP 14.25, Guarantees. The country director typically assumes responsibility for aspects of supervision bearing upon country conditions and the Bank's assistance program, while the sector manager typically assumes responsibility for technical and operational policy issues. The country director and sector manager may, for a particular country, sector, or project, agree that one of them will take overall lead responsibility for oversight of supervision in regular consultation with the other. For example, environmental or social impact assessment specialists. For example, the OPCS Vice President, with the assistance of the Senior Technical Adviser of the Quality Assurance and Compliance Unit (QACU), may join the responsible RVP and Network Head in dealing with special issues bearing upon the Bank's environmental or social safeguard policies.