The Ministry of Regional Development and Infrastructure is one of the largest procuring organizations of the country, vast portion of whose state procurements accounts for construction works.

Transparency International Georgia has thoroughly studied procurements of the Ministry of Infrastructure in 2013-2014 for the performance of construction works. The data are based on the government procurement platform (http://tenders.procurement.gov.ge) and TI Georgia's tender monitoring website tendermonitor.ge.

1. Key Findings

The study has identified several interesting facts and trends:

• Construction works are mainly procured by the Ministry’s Roads Department. The agency has spent on construction works in 2013-2014 (until December 2014) approximately 346.5 million GEL;
• Majority of procurements were carried out through competitive tenders, which is a positive development;
• Companies owned by the officials – Deputy Minister of Agriculture Davit Galegashvili and the member of the Parliament Sergo Khabuliani – are among the tender winners;
• Out of 400 tenders in 2013-2014, only one company has participated in 126 tenders;
• In 2014, state-owned companies - ”State Construction Company” and ”Tushetgza” – have won in several tenders;
• Around 100 out of over 300 executed agreements were amended in order to extend servicing deadlines;
• Several contracts were amended more than once. The most – 11 amendments were made to the tender executed with “Black Sea Group” in 2013, with the value exceeding 8 million GEL;
• Frequent amendments to contractual deadlines rise doubts about the extent of bona fide performance of duties by providers, as well as adequate reactions of procuring organization to such cases;
• Out of companies that were granted state procurement contracts in 2013-2014, only one was associated with a political party. In particular, owner of “Kavkasenergo” LLC Zviad Meskhi has donated to the Georgian Dream 30 000 GEL in June 2014.

2. Introduction

In 2014, the budget of the Ministry of Infrastructure was set at 890 million GEL, which is the largest budget after the Ministry of Health. The Ministry of Infrastructure’s budget in 2013 was 928 million GEL. Construction works are mainly procured by the Ministry’s Roads Department. The agency has spent on construction works in 2013-2014 (until December 2014) approximately 346.5 million GEL. Further, this amount is almost equally divided between 2013 and 11 months of 2014, which means that total expenses for 2014 will surpass last year’s amounts.

Notably, majority of procurements were carried out through competitive tenders. Over two years, the Roads Department has executed only one contract through simplified procurement – with “Construction Company Batumi” LLC for cleaning and reinforcement works on the slopes of the Senaki-Poti-Sarpi road. Another legal entity of public law of the Ministry, the Municipal Development Fund has made one simplified procurement worth about 31,000 GEL.

3. State Procurements in 2013-2014 (see Annex)

3.1. Large Contractors

The following contractor companies top the list by incomes received in 2013-2014:

• Fin-Estate;
• “Archeopolis”;
• Road-construction-repair company “Serpantin”;
• “Black Sea Group”;
• “New Construction”.

Table 1. 10 largest providers in 2013-2014

Compared to 2013, several companies (Fin-Estate, Archeopolis, Road Company Tbilisi, Geomsheni-2004, Sakmilsadenmsheni) have sharply increased incomes from tenders in 2014, whereas companies leading in 2013 are no longer on top positions in 2014.

3.2. Procurements of Public Interest

According to media reports, the roads-construction-repair company “Serpantin” is linked with several high officials. Over two years the company has won 6 tenders and received income of 23.8 million GEL. Majority of company shares (51%) are owned by Tamar Jankarashvili, who according to media reports is a mother of the former Deputy Minister of Interior Giorgi Zedelashvili. In 2011-2012, the company has won more – 8 tenders, but with the total value of 1.7 million GEL only.

“Herio” LLC, registered in 2011 and owned by the Deputy Minister of Agriculture Davit Galegashvili, has won one contract in 2014 worth 1.1 million GEL, while in 2013 the company has not won tenders announced by the Ministry of Infrastructure. Remarkably, Galegashvili and his spouse have taken a loan totaling 360 thousand USD. A monthly repayment of these loans exceeds the Deputy Minister’s salary three times.

“Tsekuri” LLC, registered in 1996, and 62% of which is owned by MP Sergo Khabuliani, has been granted 2 contracts during two years worth over 2 million GEL.

The largest construction contract in last two years was executed with JSC “Road Company Tbilisi”, registered in 1995. This contract worth over 21 million GEL was executed with the company for construction-repair works of the Tianeti-Zaridzeebi-Zhinvali road. Because the company was registered in the form of a joint stock company, information on its owners is not available on the Public Registry web site.

3.3. Noncompetitive Tenders

Due to absence of competition, tenders with participation of one company only include high corruption risks compared to the other tenders. In case of such tenders the state is unable to save funds unlike competitive cases. Out of 400 tenders in 2013-2014, only one company has participated in 126 tenders. Out of these, tenders have terminated or failed in 17 cases, contracts were executed with winners in up to 100 cases, while the remaining tenders are still pending. Approximately 40 procurements out of around 100 executed contracts were worth over 1 million GEL. “Serpantin”, “Archeopolis”, “Sakmilsadenmshen”, “Ibolia” and “Geomsheni-2004” have won the most (each of them 3 tenders) tenders where only they themselves had participated.

3.4. Contracts Won by the State Companies

Unlike 2013, the providers in 2014 include state-owned companies as well. The “State Construction Company”, whose 100% of shares belong to the state through the Ministry of Infrastructure itself, has won throughout 2014 contracts worth almost 10 million GEL, while the state-owned company “Tushetgza”- worth approximately 250 000 GEL.

3.5. Extension of Contract Deadlines and Termination of Agreement

Out of over 300 construction work contracts executed in 2013-2014, amendments were made to over 200 contracts that were still valid. From these, in up to 100 cases amendments were made to extend the contractual time-limits.

Some contracts were amended more than once. The most – 11 amendments were made to the tender executed with “Black Sea Group” in 2013, with the value exceeding 8 million GEL. As a result of amendments made, contractual deadlines were extended four times and were finally set at October 2014 instead of December 2013. Nevertheless, the contract’s current status is still pending.

Pursuant to the Law on the State Procurements (Article 21, Paragraph 5), “amending the terms of an agreement concluded with a provider shall be inadmissible, if such an amendment results in an increased contract price or deteriorated contractual terms for a procuring organization”. This matter is regulated in greater detail by the Order of the Chairman of the Procurements Agency, which stipulates that a total increase in value must not exceed 10%. Yet, the Order is silent on extension of deadlines.

Extension of an agreement deadline can be viewed as deterioration of contractual terms for a procuring organization. We have not studied reasons behind amendments to each state procurement contract, however, frequent amendments to contractual deadlines rise doubts about the extent of bona fide performance of duties by providers, as well as adequate reactions of procuring organization to such cases.

Procuring organization has canceled the agreement for failure to fulfill obligations only once. In about 10 other  cases, the agreements were cancelled mainly due to exhaustion of funds, while the agreements were terminated at the provider's request in three cases.

3.6. Links of Contractor Companies with Political Parties

Out of companies that were granted state procurement contracts in 2013-2014, only one was associated with a political party. In particular, owner of “Kavkasenergo” LLC Zviad Meskhi has donated to the Georgian Dream 30 000 GEL in June 2014. This company has won three tenders in 2014 worth total of 400 000 GEL, yet without identifying any suspicious circumstances in the relevant process – all tenders were competitive and the prices of “Kavkasenergo” were better compared to others.