GEO

Simplified procurement remains primary challenge for Georgia’s public procurement system

10 July, 2015

The radical public procurement reforms in the last five years have made the Georgian system one of the most transparent in the world. TI Georgia and a number of international organizations have praised the system. Nonetheless, a public procurement system’s openness and transparency does not always mean that the system will successfully save resources or ensure an appropriate level of competition.

The present report highlights trends in public procurement between 2013 and 2014 in connection to the above noted problems. It also presents solutions to the problems.

SIMPLIFIED PROCUREMENT

  • Simplified procedure can be used for the procurement of goods, services or construction works valued at up to GEL 5 000 or when an entity has the exclusive right to supply the good, service, or construction works and there is not another qualified, alternative supplier. The main concern about simplified procurements is that the law contains a number of exceptions to the above rule, which allow simplified procurement to be used in other circumstances, as discussed below. The following findings are notable in regards to simplified procurement:

  • According to the State Procurement Agency’s 2014 report, GEL 915.7 million in contracts were awarded using simplified procurements, which is 32% of total procurements. We welcome that the share of simplified procurements as a share of total procurements decreased compared with 2012 (45%) and 2013 (39%). Even so, the share of simplified procurements as a share of total procurements should decrease to a greater extent;

  • In 2013-2014, construction works worth GEL 604.5 million were procured through a simplified procedure. Construction works have made up the largest share of simplified procurements in recent years, and their share should clearly decrease. There are a fairly large number of companies in the construction sector in Georgia, and it is unlikely that only a few companies have the specific skills and competences needed for a given project. Hence, it would be difficult for the procuring agency to argue for the use of a simplified procedure on the basis of no alternative supplier being present. Moreover, construction works require an extended period of time, and hence the motivation to save time by using a simplified procurement instead of a competitive tender strains credulity. If the share of competitive tenders in this sector increases, given the high level of competition, the government will be able to direct savings towards more projects;

  • In 2013-2014, state owned enterprises and legal entities of public law made the largest procurements. The largest procurer was Gardabani Power plant Ltd. Over the course of two years, it awarded more than GEL 275 million in simplified procurements. This money was spent almost entirely on one procurement – the construction of Gardabani combined cycle power plant;

  • Between 2013 and 2014, legal entities of public law and state owned enterprises were among the largest suppliers. In total, 15% of their income came from simplified procurement;

  • Information on simplified procurements issued by the Ministry of Internal Affairs and its agencies is not accessible in the electronic system (CMR). Information on the simplified procurements of the Ministry of Defense and its agencies is also not accessible through the system;

  • Over the course of two years, state owned enterprises took in GEL 188.6 million from simplified procurements, with GEL 112.7 million in 2013 and the remainder in 2014. Awarding state-owned companies contracts may hinder competition. It is unclear on what grounds state owned enterprises were awarded the contracts;

  • In 2013, approximately 66% of simplified procurements were carried out with the government’s or the president’s approval. In 2014, approximately 58% of the simplified procurements were carried out with the government’s approval (After the 2013 constitutional changes the president was stripped of this right). With the government’s approval, a number of procurements were carried out that would have benefited from a competitive tender process, particularly in the construction sector. If a public procurement is necessitated by a truly urgent need (i.e. in instances of natural disasters), then it should be indicated in the basis of procurement entry in the procurement system. However, it is apparent that frequently no such need was present in the government approved simplified procurements. As a result, there was not a healthy degree of competition, and hence the state was unable to save public money;

  • In 2013-2014, a number of companies connected to officials received a fairly large amount of income from simplified procurement. Notably, companies connected to the majoritarian Member of Parliament representing Khashuri Valeri Gelashvili and Kharagauli Municipality Sakrebulo Chairman Akaki Machavariani received contracts through simplified procurement from agencies which they are directly connected to;

  • Companies directly connected to Georgian Dream donors (directors, owners, board members) received GEL 5.6 million in contracts in 2013 and 2014. In the same period, United National Movement donor connected companies received contracts worth approximately GEL 140 000. It should be noted, that the problem was much more severe in 2011-2012. In 2012, the United National movement received GEL 6.6 million in donations from persons connected to companies which received GEL 160 million in contracts. The same companies received GEL 110 million through simplified procurements in 2011.

ELECTRONIC TENDERS

  • According to Georgian legislation, electronic tenders are used if the value of the procurement is GEL 200 000 or more, while simplified electronic tenders are announced for procurements that are valued at less than GEL 200 000. Regarding electronic tenders, the following findings are notable in 2013-2014:

  • In 2013-2014, GEL 3.132 billion was spent on tenders. Of this, GEL 1.428 billion was procured in 2013 and GEL 1.704 billion in 2014. Electronic and simplified electronic tenders made up approximately 60% of total public procurement spending in 2014 and 51% in 2013;

  • In 2013-2014, 42 404 contracts were reached through tenders. Of these, 33 984 contracts (80%) were not amended after being signed, 5 753 (13.5%) were amended once, and 1 604 had two amendments. The remaining 1 063 contracts (2.8%) had three or more amendments;

  • Of the 42 404 contracts reached through tender, there was a single competitor on 5 644 (13.3%) contracts. After changes were made to 44 of the contracts awarded through electronic tender (0.1%), the final value of the contract was higher than the prices offered by the losing bidders;

  • In 2013-2014, some of the companies that won tenders were connected to public officials, as noted in their asset declarations. Among these officials are Davit Galegashvili – Deputy Minister of Agriculture; Nugzar Surmanidze Minister of Health and Social Affairs of the Autonomous Republic of Adjara; Giorgi Topadze – Member of Parliament; Gocha Enukidze – Member of Parliament; Jemal Putkaradze – Member of the Supreme Council of Ajara; Giorgi Zedelashvili – Former Deputy Minister of Internal Affairs.

This report was prepared by Transparency International Georgia under the auspices of the Business of Government project funded by the Swedish International Development Cooperation Agency (Sida).