GEL 40 Million Being Spent Without Tenders through Village Support Programme
For a second year now, the Village Support Programme, which was re-launched in 2019 and has the annual budget of GEL 40 million, is being carried out without tenders: through the simplified procurement procedure which involves corruption risks. The Georgian Government and the State Procurement Agency have, on two occasions, authorized 54 municipalities to conclude several thousand contracts per year through simplified (so-called direct) procurement.
The utilization of simplified procurement on such scale at the municipal level reduces transparency and competition and therefore increases corruption risks. Moreover, through this decision, the state has given up potential benefits of competitive procedures, such as saving funds and encouraging small and medium-sized regional businesses to participate in public procurement.
It is particularly problematic that a single authorization is issued annually for thousands of instances of using the simplified procurement procedure. This contradicts existing legislation which requires individual authorization for every procurement. The fact that, in the Village Support Programme's case, blanket authorization has been issued without a problem for a second year now (2020), indicates that a new and harmful practice is being adopted which is inconsistent with the law.
What is the Village Support Programme?
The Village Support Programme is a sub-component of the programme implemented by the Regional Development and Infrastructure Ministry's Regional Projects Fund. The central government uses it to finance small infrastructural projects in rural areas throughout the country. The programme covers 54 municipalities. It does not cover the country's self-governing cities or the municipalities of the Autonomous Republic of Ajaria.
Depending on the size of its population, each village receives between GEL 10,000 and GEL 20,000 under the programme. The population chooses the projects that will be financed. In each settlement, either a village meeting is convened or a voter survey is conducted in which the population votes on a pre-selected 14-point list of projects (e.g. drinking and irrigation water systems, roads, schools, ambulatory clinics, sports grounds, gardens, and so on). Some 5,000 projects across the country are financed annually.
Many of the projects are co-financed by the municipalities since the allocated funding is not always enough to implement the projects selected by the population. A municipality can match the allocated funds through co-financing.
The Village Support Programme was launched in 2009. Its budget was GEL 40 million in 2009-2011 and GEL 50 million in 2012-2016. After a two-year break, the programme was relaunched in 2019 with a GEL 40-million budget. While there was a requirement to hold a tender for each of the programme's projects until 2017, and simplified procurement was only used as an exception, all projects have been implemented through direct simplified procurement since 2019.
What is the problem?
Decision inconsistent with law
A procuring body needs two authorizations for simplified procurement: from the Government and from the State Procurement Agency. The authorization from the Agency has been mandatory since 2016. The procedure is electronic and transparent. The procuring body must fill out a special questionnaire in the Unified State Procurement System, providing the reasons for the necessity of simplified procurement and submitting the necessary documents (including the Government's authorization). According to the law, this process must be conducted individually for every single procurement.
In the Village Support Programme's case, the so-called "joint procurement" mechanism has been used which allows several procuring bodies to conduct a procurement jointly. When this mechanism is used, one of the procuring bodies announces a tender based on the written consent of the others or applies for simplified procurement authorization.
According to the law, the joint procurement procedure is to be used on every occasion for a single procurement only and not for conducting several procurements simultaneously. The same restriction applies to requesting the authorization for simplified procurement. Consequently, it should not be possible to use the joint procurement procedure to obtain authorization for applying the simplified procedure to more than a single procurement at a time. However, this is precisely what has been happening with the Village Support Programme since 2019. For a second year now, the Bolnisi Municipality City Hall has requested, on behalf of 54 municipalities, a blanket authorization to use the simplified procedure for several thousand individual procurements with a total cost of GEL 80 million. The State Procurement Agency has consented to this.
Adoption of bad practice
The Village Support Programme has set a dangerous precedent of a blanket authorization of simplified procurement being issued for multiple procurements. In addition to contradicting the requirements of the law, this also directly contradicts the State Procurement Agency's publicly declared goal of reducing the share of simplified procurement in public procurement. The steps taken toward this goal have yielded impressive results in recent years: The share of simplified procurement in public procurement fell from 37% to 19% between 2016 and 2018. In this context, it is not clear why the State Procurement Agency has issued blanket authorization to spend all of the Village Support Programme's funds through simplified procurement.
Increased risk of corruption
Compared with competitive procedures, simplified procurement always involves a higher risk of corruption since the supplier is selected in an opaque and non-competitive manner. The procuring body has more opportunities to pick a company based not on price and quality but on criteria that could potentially be unfair or unlawful. The risk of secret deals also rises during simplified procurement.
The decision by the Government and the State Procurement Agency to have several thousand contracts worth a total of GEL 40 million concluded in this fashion every year can be described as an unlawful one as well as one that is irresponsible and encourages corruption.
Missed opportunity to support small and medium-sized businesses
Considering the small size of the planned projects, the Village Support Programme is a good opportunity to support small and medium-sized construction businesses at the municipal level. The priorities of Georgia's 2018-2021 Regional Development Programme include "supporting small and medium-sized enterprises, growth-oriented sectors of the economy, and export."
In this context, spending the Village Support Programme's budget through the simplified procurement procedure means missing the chance to comprehensively support regional businesses. It is true that, regardless of the manner in which the contracts are concluded, the work is mostly carried out by local companies. However, tenders would make it possible for a larger number of companies to engage in healthy, open competition and to obtain government contracts in a fair manner. In contrast, during simplified procurement, the procuring body itself contacts the companies and the selection is opaque.
Giving up savings
In 2018, the state procurement system saved 10.6% on construction work procurement through competitive tenders. Based on this figure, by spending the funds under the Village Support Programme entirely through the simplified procurement procedure, the state is giving up potential annual savings of GEL 4 million.
This money could also be spent on municipal projects: According to the Village Support Programme rules (Article 1(12)), the Government can authorize the municipalities to use savings from the funds allocated under the programme for implementing other infrastructural projects in the same municipality.
Arguments presented by municipalities
It is also a problem that the municipalities are unable to prove that implementing the Village Support Programme requires using simplified procurement. The special questionnaire which they have filled out on the state procurement website (ID: SMP200000486) includes several important questions to which the municipalities failed to provide answers supported by arguments:
Question #2: Why is this activity of state and public importance?
"…the selection of projects under the Village Support Programme is based on the principle of decisions being made by the population. For this purpose, general assembly sessions take place in the settlements or consultations are held with the population, enabling the citizens to decide on the selection of the projects to be implemented. This activity will help the municipalities to launch the work to be procured under the programme immediately and is therefore of state and public importance."
Comment: The answer fails to provide reasons why the Village Support Programme is of greater state and public importance than any other programme financed from the state budget.
Question #3: Why did the need to implement the activity under a tight time frame arise and why was it impossible to plan the procurements in advance?
"Implementing this activity requires a complex approach since the scale of the project and the extensive involvement of the population require consideration of multiple factors. It is difficult to fully determine at the initial stage the quantity, the type, and the complexity of the work that each municipality will have to carry out under the programme. Moreover, this method of selection requires quite a significant amount of time prior to the commencement of work, while the programme essentially involves carrying out work under an extremely tight time frame."
Comment: The procedure and the time frame for the implementation of the Village Support Programme are established through the relevant Government decree. The implementation process lasts almost 12 months every year and the project selection stage must end in May at the latest, while the remaining time must be devoted to the planning and implementation of procurement. Consequently, every municipality knows in advance which stages it must implement and how much time it has for it. This information is undoubtedly enough to conduct all preparatory activities and for the municipalities to plan tenders. If some procurement can still not be carried out through a tender, the municipality in question must then request the permission to use the simplified procedure for such procurement alone (instead of seeking it in advance for everything).
Question #6: Why will procuring the items required for the implementation of the activity through the electronic tender or competition procedures result in a significant delay or cancellation of the activity or hinder its uninterrupted implementation?
"…it is also necessary to consider the fact that, due to the project format, the procurements to be conducted under the project…are quite diverse and include eight classificatory codes. This means that each municipality will have to conduct/organize tens of electronic tenders, resulting in a significant extension of the project implementation time frames. Consequently, given the high public importance of the planned activities, as well as the need to ensure their high quality and to conduct them without disruption, it is advisable to procure the construction materials, work, and relevant services necessary for this activity through the simplified procurement procedure."
Comment: The Georgian state procurement system is among the most convenient and effective ones in the world, both in terms of the time frames and in terms of process automation. It is therefore unclear why the announcement of even tens of tenders by each municipality during a year will result in the disruption of the Village Support Programme's implementation. If some project is, in fact, delayed due to specific circumstances, the procuring body can then apply to the State Procurement Agency and request the permission to conduct simplified procurement, as they do for any other procurement outside the Village Support Programme.
State Procurement Agency's Position
Transparency International Georgia also contacted the State Procurement Agency and asked for its opinion. Based on its reply, we took some fact-related comments into consideration. However, unfortunately, the Agency does not think that there is inconsistency with the law and largely shares the logic of the municipalities presented above. This is alarming since the State Procurement Agency is supposed to be the guarantor of correct interpretation and application of the law.
In its reply, the Agency presented another argument which merits attention: "It is necessary to consider the fact that, given the small quantity and value of the items to be procured individually, there is always a strong likelihood that the tenders will end without a result, which would, in turn, cause a significant increase in the project implementation time frames and the disruption of their implementation."
The fact that a significant share of tenders is cancelled is, indeed, one of the most significant challenges of the Georgian procurement system. However, giving up on competitive tenders, for this reason, is counterproductive because the resolution of the problem requires the opposite: involving a larger number of companies in the competitive procurement procedures. In the case of the Village Support Programme, an information campaign can be organized at the municipal level in order to provide local companies with information on the public procurement opportunities through additional channels beyond the procurement website. These efforts would reduce the number of cancelled tenders and eliminate the need to sacrifice openness and fair competition.
Moreover, according to official data, construction work procurement is already quite competitive: each such tender has 2.93 bidders on average. In this situation, it is not clear why the competitive procurement procedures have been rejected.
We urge the Regional Development and Infrastructure Ministry and the State Procurement Agency to reverse their decision whereby the unlawful blanket authorization for the use of the simplified procedure was issued for thousands of procurements worth GEL 40 million to be carried out under the Village Support Programme. The money allocated for the Village Support Programme must be spent in a more transparent, competitive, and fair manner.
 The central budget allocates GEL 40 million for the Village Support Programme. However, since the municipalities can match this funding, they have requested the authorization to spend the maximum possible amount (GEL 80 million) through the simplified procedure in the State Procurement System.