Lack of competition persists in public procurement through contests
Pursuant to the Law of Georgia on Public Procurement, a contest is an alternative means of state procurement for project services or demolition of a building/structure and/or removing materials and waste following demolition of a building/structure, used at the discretion of a procuring organization.
Definition of contest is further elaborated in the Order of the Chair of the Public Procurement Agency stipulating that contests are an alternative means of procurement authorizing a procuring organization to procure project services, including design, planning, cost estimation, architectural and engineering projects or plans.
By virtue of the Law of Georgia on Public Procurement, a contest announcement and application documents must be published on the official website of the Agency. The contest announcement is then given a unique reference number and both the announcement and the application documents are considered officially promulgated.
Terms and conditions for publishing a contest announcement are regulated by a sub-legal act – the Order of the Chair of the Public Procurement Agency. The title of the order is “Order #7 on the adoption of terms and conditions for public procurement of project services through contests” and it is dated May 22, 2015. Notably, the Order introduced several important new regulations in the rules of public procurement through contests, effective as of July 2015.
Before enactment of the new regulations, public procurement unlike tenders were carried out bypassing the Agency. The process lacked transparency because it was not conducted electronically and contesters did not have an opportunity to bring their grievances to the Agency’s Board of Dispute Resolution.
Existing regulations have a number of advantages over the legal framework that existed prior to July 2015. For instance, the Order of the Chair of the Public Procurement Agency sets minimum time limit for submission of proposals: candidates have at least 10 days for getting acquainted with the contest announcement and application materials from the day the announcement and application materials were placed in the system, while according to old regulations determination of time limit was left to the discretion of procuring organization. Such practice created risks of corruption.
Additionally, according to the new regulations, submission of contest proposals and administration of the contests is possible through the electronic system of the Public Procurement Agency only, which ensures that the process is more transparent.
Based on the regulations effective as of July 2015, candidates can appeal decisions of a procuring organization or a contest commission with the procuring organization or in court, as well as in relevant Dispute Resolution Board.
Transparency International – Georgia welcomed the new regulations introduced by the Public Procurement Agency and studied trends identified in public procurement through contests from July 2015 through February 2016.
During the reporting period total of 104 contests were announced, leading to conclusion of 37 contracts between state agencies and private companies worth GEL 3.9 million. The difference between aggregate value of contests and value of all contracts is GEL 4 million, meaning that state agencies were able to save nearly GEL 4 million over the period of 8 months, despite low competition. Contests were administered in a transparent manner, while analysis of public documents did not reveal any type of violation.
Major procurers and providers
Contests as means of procurement were most frequently utilized by the non-profit (non-commercial) legal entity Tbilisi Development Fund, which comes as no surprise because the scope of the Fund’s activities covers the categories of services (architectural and engineering works) that are procured through contests. The Fund accounted for 82% of all procurements done through contests (GEL 3.2 million). The Ministry of Internally Displaced Persons from the Occupied Territories, Accommodation and Refugees of Georgia has awarded eight contracts worth over GEL 150 000; the Roads Department has awarded one contract worth GEL 400,000. More than 10 state entities have awarded contracts of lesser value.
More than half of spending within the contests went to a single company, Studio 21 Ltd., which won two contests with total worth of GEL 1.8 million; total income of all other companies is less than a million.
Lack of competition in contests and changes in contracts
Out of 104 contests announced, nearly half had no participants, while 38 contests had only one participant each. State entities contracted total of 31 different companies.
For comparison, out of 228 contests announced in 2014, 140 had only one participant each, meaning that adoption of the new regulations has not had any positive impact on competition so far.
12 contracts were amended after award. Notably, a contract signed between Wall Ltd. and the Legal Entity of Public Law 112 was abolished because it was impossible to perform works after high voltage cables were found in the area. Such cases are indicative of flaws in planning of procurement and inability to estimate certain risks.