Service Eases a Procurement Rule Suppliers Blame for Choking

Mar 7 , 2026. By BEZAWIT HULUAGER ( FORTUNE STAFF WRITER )

Federal procurement officials cut the supplier deposit from 10pc of the contract value held in a non-interest-bearing account for three years to three percent tied to a one-year, product-based contract announced at a meeting in the Getfam Hotel on Haile Gebresellasie Rd. The previous arrangement created a prolonged cash squeeze in an inflationary economy, with businesses operating on thin margins facing repeated price shifts.

The federal agency in charge of public procurement has retreated from one of the most disputed provisions in its supply regime, cutting the deposit suppliers are required to immobilise a contract’s value and replacing the terms with one-year agreements tied to individual products.

The change, announced last week at a meeting at the Getfam Hotel on Haile Gebresellasie Rd., during a performance presentation, may appear technical. In practice, it goes to the centre of a federal procurement system strained by inflation, delayed price adjustments, disputed demand estimates, weak delivery performance and recurring mistrust between public institutions and private suppliers.

Under the previous arrangement, suppliers awarded contracts to provide goods and services to public institutions had to keep 10pc of the contract value in a non-interest-bearing account for three years. The new system reduces that lockup to three percent and requires federal agencies to communicate their annual demand to suppliers based on approved budgets, an adjustment intended to make procurement more predictable and force institutions to state their needs more accurately.

"The changes apply only to new contracts," said Asmare Yigezu, director general of the Public Procurement Service (PPS). "Existing agreements will continue under the old terms."

The burden of the old system was not difficult to identify. Suppliers faced a prolonged cash squeeze, with funds tied up for years without interest in an inflationary economy marked by repeated price shifts. For businesses operating on thin margins, the requirement magnified financing pressures and exposed them to rising costs over the life of long-term contracts. By reducing the deposit to three percent and shortening contract duration, the Service is signalling recognition that the old model had become increasingly untenable.

Yet the shift also places greater weight on annual planning and budget discipline by public institutions, which have themselves been blamed for inflating, delaying or altering procurements in ways that complicate the process and waste resources.

The Asset Disposal & Market Survey Sector (ADMSS) permits contract price adjustments every three months, subject to preconditions. Its officials disclosed that close to 41 contracts have already been revised. But the process has become a recurrent source of contention for the 177 federal agencies served by the system and for their suppliers.

Federal officials hailed the changes as an attempt to reset accountability. According to Asmare, the reform would change the dynamics of the system by improving responsibility on both sides, in how suppliers deliver products and in federal institutions, making their needs public.

Federal agencies often complain that suppliers delay delivery while waiting for prices to be revised upward. Suppliers argue that volatile costs, shortages of foreign currency, rising transport expenses and delayed revisions leave them absorbing losses they cannot sustain.

According to Nejiba Akmel, deputy director general of ADMSS, large price variation had forced budgeted agencies to revise plans and urged institutions to stay within the approved budget. The absence of timely market price data from the Ethiopian Statistical Service (ESS) is blamed for delaying decisions on price revisions. The surveys used for price reviews can take up to a month, leaving suppliers to absorb the interim loss.

“We can do nothing about it,” Asmare told Fortune.

Procurement experts observed deeper policy risk at play. According to them, a procurement system cannot function efficiently when prices move faster than its adjustment mechanisms can respond. If revisions are delayed, suppliers have an incentive to stall delivery. If revisions are granted too easily, institutions risk budget overruns and the system risks moral hazard.

The Service’s current threshold attempts to contain this by requiring suppliers seeking a revision to review prices, provide at least one-eighth of the product and present a valid reason before approval. But the accounts offered by officials and institutions revealed that enforcement remains uneven and incentives poorly aligned.

Performance figures presented by the Service indicate the scale of activity and the stakes involved. During the first six months of the current fiscal year, procurement through the Electronic Government Procurement System reached 13.6 billion Br, covering common-use goods and strategic items required by federal budget institutions and public universities. For strategic goods, procurement worth 48.4 million dollars was issued for asphalt, but three companies expected to supply it failed to deliver and had their contracts cancelled.

Yet the operational details shared during the discussion on March 5, 2026, revealed that basic coordination failures still plagued the system. Universities and federal agencies complained of low-quality deliveries, abrupt supplier withdrawals, late payments, inconsistent demand records and procurement requests that far exceeded actual need.

Tesfaye Lema, president of Wollega University, observed that low-quality products had been delivered and that some providers unexpectedly withdrew, disrupting services, especially catering. Asmare disclosed that quality problems trigger a fine of 1/1000 of the product’s price, with repeated violations leading to contract termination and referral to the Public Procurement Authority (PPA) for sanctioning.

Other participants worried about "distortions" on the demand side.

According to Sew Agegn of Mekdela Amba University, some suppliers failed to deliver a single item even after contracts were signed, and months passed due to budget delays.

As an example three types of UPS were issued with the number exceeding 480 which was never needed with 300 computers which has never been needed. This has resulted on 36 million Br contract and 3.5 million Br as a collateral has been paid to PPS. Another company which first ordered seven all in one processor machine later asked for 714 pc higher demand of computer, laptop,125 pc increase from the demand which they only needed 75.  Desktop computer were demanded 150 but the real demand was 100 computer more than the initial request.

Suppliers spoke of a different set of constraints.

Mintesnot Tesserah is the general manager of BelayAb Motors, incorporated in 2006 as a subsidiary of Belayab Business Group, specialising in the imports, assembly, and distribution of vehicles.

According to Mintesnot, companies like his struggle with the brands they select and the foreign currency shortages in a sector heavily dependent on imports. Founded by Aschalew Belay, BelayAb Motors has a plant in Adama (Nazareth) on a 30,000Sqm site, with the facility assembling up to 18 cars a day across multiple shifts.

Another supplier blamed checkpoint charges and rising fuel costs for making it difficult to deliver small consignments to universities, which were entirely consumed by these costs. Officials of the Service conceded that some public institutions refuse to accept equipment even after verifying quality, while delayed payments remain a persistent obstacle.

The e-GP platform itself also came under fire. Those who have used it before observed that closing a deal can take up to two months and criticised its automatic exclusion method. Officials defended the platform as still under development and pledged complaints would be taken seriously. The Service is also considering expanding the system’s scope. A representative from the Petroleum & Energy Authority (PEA) called for a garage system for servicing government vehicles, arguing that vehicles have become a major source of financial leakage.

Asmare disclosed that the Service is working to include garages and would soon have an answer on replacements, referring that issue to the Ministry of Finance.

The policy direction is clearer than the system’s unresolved contradictions, according to Zebene Gezahegn, a procurement expert. He argued that underpricing is tolerable up to 30pc, while overpricing should be allowed only within a 10pc margin, cautioning that ignoring that gap had previously opened the door to possible fraud.

"The new system’s individualised contracts would help institutions receive what they need within budget," he said.

PUBLISHED ON Mar 07,2026 [ VOL 26 , NO 1349]