How the State Spends Our Money
25 December, 2017
The study of public procurement conducted from 1 January 2015 until 30 June 2017 showed the following main trends:
- Many progressive amendments that can address important problems prevailing in the system have been made to the public procurement legislation. Of special note are the following three amendments:
- The procurer organizations, before carrying out simplified procurement, are now under the obligation to clear this in advance with the State Procurement Agency;
- A new kind of two-stage tenders has been introduced;
- Simplified electronic tenders have been abolished, only regular electronic tenders remain in operation.
- During the two and a half years covered by the study, the total value of contracts signed through a simplified procedure amounted to GEL 2.86bn, which constituted 32 percent of the total procurement. However, in 2016 considered separately, this indicator reached 37 percent, which was a significant deterioration of the situation compared to previous years;
- The largest contracts were signed through a simplified procedure by Gardabani Thermal Power Plant 2 (approximate total amount of GEL 376m), Georgian Transit (GEL 245m) and Tbilisi City Hall (GEL 145m);
- The total value of contracts signed with the 10 largest suppliers through a simplified procedure amounted to GEL 1.1bn. The largest supplier was China Tianchen Engineering Corporation which signed only one contract with Gardabani Thermal Power Plant 2 worth GEL 376m;
- The total value of the 10 largest procurement categories under the simplified procurement procedure amounted to GEL 1.77bn. The largest amount was spent on construction and civil engineering works;
- The procurer organizations signed 6,772 simplified contracts worth GEL 93.6m with Legal Entities of Public Law (LEPLs);
- There were 3,949 contracts worth GEL 57m signed under the simplified procedure with 43 state enterprises;
- There were 25,626 contracts worth GEL 95m signed with newly established companies, including cases when the contract value exceeds GEL 1m:
- A contract worth GEL 345,000 was signed under such circumstances when signing the contract preceded the registration of the company or the company was established a few days before signing a contract;
- The problematic cases of this kind highlighted by this report raise questions concerning a possibility of corrupt deals being made and require attention on the part of relevant authorities – a corresponding procuring organization, State Audit Office or investigative agencies.
- Up to 140 persons who had links with up to 150 supplier companies (former or active shareholders or directors) that were contracted under a simplified procedure donated about GEL 6m to the ruling party. The total value of contracts signed with their companies amounted to approximately GEL 75m;
- 20 procurer agencies purchased more than 70% of goods and service through simplified procedures;
- During the period covered by the study, over 2,400 procurer organizations registered in the public procurement have not purchased anything though tenders and only used simplified procedures. Furthermore, according to the State Procurement Agency portal, over 50 procurer organizations did not use simplified procurement at all, which is virtually impossible. Their procurement through tenders could be seen but no contracts signed as a result of a simplified procurement procedure can be found; Transparency International Georgia has been talking about this problem for years now, and the State Procurement Agency has been informed about this on more than one occasion. Despite this, the problem has not been addressed, which makes us think that information is being concealed deliberately.
- During the period covered by the study, 66,639 contracts worth GEL 6.1bn were signed:
- During this period, the largest 31 companies signed 1,629 contracts worth GEL 1.36bn;
- The contracts of the highest total value were awarded to Black Sea Group. During the period covered by the study, the company signed 19 contracts worth approximately GEL 89m; Saba Construction, which signed 20 contracts worth GEL 83m, comes second in winning the highest-value tenders.
- Twenty-two large procurer organizations (with procurement exceeding GEL 50m) purchased the total of approximately GEL 3.1bn worth of services through tenders;
- The total value of the 15 largest procurement categories in tenders amounted to GEL 4.67bn with 29,334 contracts signed. The largest amount was spent on construction and civil engineering works;
- Competition in tenders increased by approximately 10 percent: an average number of tender participants in 2015 was 2.03 while, for the first half of 2017, this indicator increased to 2.22. However, in case of a number of purchasing organizations (both local and central), low level of competition in tenders remains apparent. For example, all tenders announced by the Tianeti association of kindergartens as well as 66 percent of Telavi Municipality tenders had only one participant;
- There were 175 contracts worth GEL 247.4m signed with 82 foreign companies as a result of tenders (4 percent of the total value of tenders);
- The winners of the highest-value tenders are companies registered in Turkey, followed by those registered in Azerbaijan. The largest category of procurement from foreign companies is pharmaceutical products.
- There were 6,946 contracts worth GEL 200.3m signed with 1,849 newly established companies through tenders (10 percent of all contracts signed through tenders). For example, a company that won the tender announced by Rustavi Municipality for GEL 735,000 was founded 20 days after the tender was announced;
- Up to 90 persons with links to up to 80 companies (active or former shareholders or directors) that won tenders donated approximately GEL 3.6m to the ruling party. The number of contracts signed by their companies through tenders was approximately 1,600, their total value exceeding GEL 360m.
- Contracts were signed in 71 percent of announced tenders. In 29 percent of cases, tenders failed;
- Special attention needs to be paid to the procurer organizations with very high indicator of tender failure, between 60 and 100 percent;
- 1,136 contracts signed through tenders worth GEL 66m were not fulfilled (1 percent of total value of tenders).
 Termination, failure or negative outcome of tenders