Key findings

From June 1, 2020, to September 15, 2021, up to 4,500 simplified public procurement contracts for the purchase of construction services have been signed. The total value of these contracts is up to GEL 125 million.

Out of all simplified public procurement contracts concluded for construction services, the contracts of GEL 33.8 million were signed with the companies of the donors of Georgian Dream and Salome Zurabishvili.

GEL 33.8 million was distributed to 31 companies and one individual, who jointly donated more than GEL 1.1 million to the Georgian Dream in 2016-2021.

Signing contracts with ruling party donors through simplified procurement raises suspicions of corrupt deals.

From June 1, 2020, to September 15, 2021, 72 newly established companies have received simplified public procurement contracts. State agencies signed the contracts within a maximum of 6 months from the establishment of these companies. Such companies have signed a total of 200 contracts with a total value of GEL 3.8 million. Some of the companies and their owners did not even have business experience.

Of the 72 companies, 43 received contracts less than 3 months after their registration, and 8 companies received contracts within a maximum of 10 days after their establishment. Among them, 2 companies – Burghi LLC and Quality 2021 LLC were established only one day before they received contracts totaling GEL 243,000.

The participation of newly established companies in public procurement, especially in simplified procurement, increases the likelihood of corruption and, at the same time, the quality of goods or services provided by an inexperienced company is questionable.https://civil.ge/archives/340246

Recommendations

• Investigative agencies should be more interested in public procurement contracts containing signs of corruption;
• Procurer organizations should, as much as possible, refrain from concluding simplified public procurement contracts with newly established, inexperienced companies, or justify such decisions with a higher standard than usual.

Introduction

On February 26, 2020, the first case of coronavirus infection was confirmed in Georgia.^[1] Due to the increase in the number of infected people, a state of emergency was declared in Georgia on March 21, which lasted until May 22. During the state of emergency, economic activity and the free movement of citizens were severely restricted. After that, due to the need, in different periods, certain restrictions were established based on the Law of Georgia on Public Health. Some regulations are still in force.

Due to the pandemic, the share of simplified (direct) contracts in public procurement has increased. When the share of simplified procurement increases and, at the same time, it is carried out expeditiously in certain force majeure situations, the risks of corruption and improper practices rise.

Transparency International Georgia published a report on public procurement during the state of emergency (March 21, 2020, to May 22, 2020) last year, examining corruption risks in public tenders and simplified procurement.^[2] This time we will offer the analysis of simplified public procurement from June 2020 to October 2021. The study will be divided into three parts. This first section provides an analysis of contracts for simplified procurement of construction services. Construction services are one of the largest categories of public procurement and include construction site preparation works, full or partial construction works, construction-installation works, and building finishing works. The reporting period for this part of the study is from June 1, 2020, to September 15, 2021.

The second part of the study, which will be published by the end of the year, will focus on problems and corruption risks found in other major categories of simplified procurement. Third and the final part will summarize all-important issues related to simplified public procurement in the last year and a half.

General statistics

From June 1, 2020, to September 15, 2021, up to 4,500 contracts for the purchase of construction services were signed through simplified procurement. The total value of these contracts is up to GEL 125 million. Among them, 460 contracts with a total value of up to GEL 30 million were signed based on the request of urgency. More than 2,000 contracts worth a total of GEL 89 million were awarded for smooth organization of events of state and public importance.

Participation of ruling party donors in simplified public procurement

One of the highest risk carriers of corruption in public procurement is when simplified procurement contracts are awarded to companies that fund a ruling political party directly or through their affiliates. At such times, signs of political corruption appear.

During the study period, out of GEL 125 million worth of simplified public procurement contracts for the construction services the contracts of GEL 33.8 million (27%) were awarded to the companies the owners of which in various years have donated to the ruling Georgian Dream - Democratic Georgia (Georgian Dream) party or Salome Zurabishvili, a 2018 presidential candidate backed by the ruling party. In particular, GEL 33.8 million was distributed to 31 companies and one individual who jointly donated more than GEL 1.1 million to the Georgian Dream in 2016-2021 (Table 1). About half of this amount was donated to the ruling party after the pandemic started.

Data source: https://www.tendermonitor.ge/;

https://transparency.ge/politicaldonations/

Additional information on 10 companies that received the largest funds through simplified public procurement from June 1, 2020, to September 15, 2021, is given below.

In-Si LLC

From June 1, 2020, to September 15, 2021, In-Si LLC received 4 simplified public procurement contracts with a total value of GEL 13 million. All four contracts were signed by N(N)LE[3] Tbilisi Development Fund. In-Si won public tenders of GEL 33 million during the reporting period. Among them, the GEL 5.1 million contract was received from the Tbilisi Development Fund as a result of the disqualification of 4 competitors.

In 2015-2021, In-Si has received GEL 124 million worth of simplified public procurement contracts.

Zviad Toidze, Director General of In-Si LLC, is a donor to the Georgian Dream. In October 2016, he donated GEL 50,000 to the party. At the same time, In-Si is the implementer of Tabori-Resorts, one of the projects of Panorama Tbilisi. For its part, Panorama Tbilisi is a project of Bidzina Ivanishvili's Co-Investment Fund.^[4]

New Road LLC

On August 18, 2020, the Roads Department of the Ministry of Regional Development and Infrastructure of Georgia signed a simplified public procurement contract of GEL 6.8 million with New Road LLC. According to the contract, the company has carried out disaster recovery works in Oni Municipality. During the study period, New Road also won public tenders of more than GEL 200 million.

In September 2017, Davit Zhgenti, 100% owner and Director General of New Road, donated GEL 30,000 to the Georgian Dream.

Tsotne LLC

From June 1, 2020, to September 15, 2021, Tsotne LLC received 2 simplified public procurement contracts worth GEL 4 million for construction works. The contracts were signed by Oni City Hall. Until 2020, the company had received one large contract (valued at GEL 578 thousand) from Oni City Hall. In addition, Tsotne LLC has received more than GEL 300 thousand from public tenders, mainly from Oni Municipality.

Irakli Kervalishvili, the owner of 50% of Tsotne, donated a total of GEL 240,000 to the Georgian Dream and Salome Zurabishvili in 2017-2021.

JM Company LLC

On September 28, 2020, Oni Municipality City Hall signed a simplified public procurement contract worth GEL 2.2 million with JM Company LLC for construction works. Before signing the contract, JM Company had no experience in public procurement. In July 2019, it participated in a public tender, but another company won. In May 2021, JM Company won an uncompetitive public tender worth GEL 68,474 announced by Gardabani Thermal Power Plant LLC. The price offer of JM Company was GEL 65,320, but the contract was signed for GEL 69,218.8.

On December 26, 2016, Nugzar Mamutchadze, a 50% owner of JM Company, donated GEL 50,000 to the Georgian Dream. Nugzar Mamutchadze's brother, Amiran Mamutchadze, is the director of Black Sea Group LLC and owns 37.5% of its shares. Black Sea Group has received more than GEL 300 million from public tenders, and GEL 84 million through simplified public procurement. Guram Mamutchadze, Nugzar Mamutchadze's father, also is a donor of the Georgian Dream. On December 27, 2016, he donated GEL 50,000 to the party.

Ibolia LLC

On February 4, 2021, the Roads Department of the Ministry of Regional Development and Infrastructure of Georgia signed a contract worth GEL 2.2 million with Ibolia LLC for construction works. In 2012-2021, the company has received simplified public procurement contracts worth up to GEL 10 million, and more than GEL 100 million through public tenders.

Transparency International Georgia has written about Ibolia before.^[5] The shareholder of the company is Ioseb Makrakhidze, a former Georgian Dream majoritarian MP from Gori, who was first accused of fraud in public procurement and then nominated as a majoritarian candidate. Ioseb Makrakhidze donated a total of GEL 100,000 to the Georgian Dream in 2016 and 2018. As for his company, it donated GEL 20,000.

Borani LLC

During the pandemic, various government agencies signed 4 simplified public procurement contracts worth GEL 1.1 million with Borani LLC for construction works. In 2011-2021, Borani LLC has won public tenders worth up to GEL 30 million.

On September 11, 2017, and October 8, 2020, Melano Ukleba, a 16% shareholder of Borani LLC, donated twice GEL 10,000 to the Georgian Dream. Giorgi Abuladze, a 10% shareholder of the same company, also donated GEL 10,000 to the Georgian Dream on September 11, 2017. Amiran Chkhikvadze was also a shareholder of Borani until June 2021, and he, like Melano Ukleba, donated GEL 20,000 and 40,000 to the Georgian Dream on September 11, 2017, and October 8, 2020, respectively. It is worth mentioning that the company received the first major simplified public procurement contract (valued at GEL 500,000) on February 2, 2021, in 4 months after donating to the ruling party. Before February 2, 2021, Borani LLC had not received a large simplified public procurement contract (not more than GEL 15,000).

Gzamsheni-18

In 2020-2021, the Roads Department of the Ministry of Regional Development and Infrastructure of Georgia signed two simplified public procurement contracts of GEL 500,000 with Gzamsheni-18 LLC for construction works. In 2012-2021, the company has received simplified public procurement contracts worth more than GEL 17 million, and up to GEL 35 million through public tenders.

On September 5, 2017, Teimuraz Jakhva, the director and 52% owner of Gzamsheni-18, donated GEL 15,000 to the Georgian Dream. On the same day, Vakhtang Tchanturia, the owner of 20% of the company, donated GEL 10,000 to the same party. Gzamsheni-18 has received 62 simplified public procurement contracts, including the largest - GEL 4.5 million contract was signed with the Roads Department of Georgia on October 3, 2017, i.e. a month after company owners’ donations.

Leader + LLC

In November 2020, the Roads Department of the Ministry of Regional Development and Infrastructure of Georgia signed a GEL 500 thousand simplified public procurement contract with Leader + LLC for construction works. Then, in January 2021, Administration of Mestia signed a GEL 50,000 simplified public procurement contract with this company. In 2015-2018, Leader + has received 5 simplified public procurement contracts with a total value of more than one million GEL. In 2015-2021, the company has won public tenders worth up to GEL 18 million. It has received contracts mainly from Administration of Mestia and the Roads Department.

On September 8, 2021, Leader + LLC donated GEL 5,000 twice a day to the Georgian Dream.

Steel House Construction LLC

In 2020, Steel House Construction LLC received 12 simplified public procurement contracts worth GEL 492,000. Gardabani Municipality signed all contracts with the company. Among them, 11 contracts of GEL 371,785 were signed on one day - October 2, and one contract of GEL 120,215 was signed about 2 weeks earlier, on September 15. With the contracts signed in one day, the company committed to arranging outdoor lighting and sports equipment in the villages of Gardabani Municipality. These procurements were made by the fund created for the projects to be implemented in the regions under the Rural Support Program. Steel House Construction was founded in September 2018 and had not received any simplified public procurement contract until September 2020.

In 2020-2021, Steel House Construction has participated in 18 public tenders, winning 2 of them and concluding contracts with a total value of GEL 288 thousand. The contracts were signed with Gardabani Municipality and the Ministry of Internal Affairs. The company won the first tender in January 2021. Accordingly, when Gardabani City Hall signed 12 contracts with it in September-October 2020, it had no experience in public procurement.

Zezva and Dimitri Saltkhutsishvili, 50-50% shareholders of Steel House Construction LLC, also own another company - Steel House LLC. The company has received 46 simplified public procurement contracts worth up to GEL 115 thousand in 2018-2021 and won public tenders with a total value of up to GEL 3 million. Different public agencies were the company’s contractors.

On December 5 and 6, 2018, Zezva and Dimitri Saltkhutsishvili donated GEL 30,000-30,000 to Salome Zurabishvili, a presidential candidate supported by the Georgian Dream.

GG LLC

In 2020, Mtskheta City Hall signed 2 simplified public procurement contracts worth GEL 464 thousand with GG LLC. Before that, in 2019, GG received only one simplified public procurement contract of GEL 324 also from Mtskheta City Hall.

Contracts received by newly established companies

From June 1, 2020, to September 15, 2021, 72 newly established companies have received simplified public procurement contracts. Here we gathered such cases when a company gets a simplified public procurement contract up to 6 months after its official establishment. Such companies have signed a total of 200 contracts with a total value of GEL 3.8 million. Of the 72 companies, 43 received contracts less than 3 months after their registration, 25 companies received contracts within a maximum of one month, and 8 companies received contracts within a maximum of 10 days after their establishment.

The participation of newly-established companies in public procurement, especially in simplified procurement, requires attention because of two factors: 1. it increases the risks of corruption, and 2. it raises questions about the quality of goods or services provided due to lack of experience. In addition, when a buyer purchases goods or services from a newly established, inexperienced company, it is suspected that it is interested in giving money to a specific company. Additional information on the 8 companies that received simplified public procurement contracts within 10 days after their establishment can be found below.

Burghi LLC

Burghi LLC was established on October 19, 2020, and in one day, on October 20, Sagarejo City Hall signed two simplified public procurement contracts worth GEL 205,260 with it for construction works. Burghi has never signed any simplified procurement contract with other state agencies.

Since May 2021, Burghi has also participated in 3 public tenders. All three tenders were announced by Sagarejo City Hall. Burghi won 2 tenders with a total value of GEL 152,133, including one without a competitor.

Zakaria Buzariashvili is the director and 100% owner of Burghi LLC. Before founding Burghi, Zakaria Buzariashvili was a sole proprietor and on December 14, 2018, he got a simplified public procurement contract of GEL 1,250 from Sagarejo City Hall for the supply of flag holders.

Quality 2021 LLC

Quality 2021 LLC was established on June 23, 2021, and the next day, on June 24, Mtskheta City Hall signed a simplified public procurement contract worth GEL 20,267 with it for construction works. On June 25, 2021 (2 days after the establishment) and on August 26, Mtskheta City Hall signed 2 more simplified procurement contracts totaling GEL 18,150 with the company. Overall, the company received more than GEL 38,000 in three contracts. Quality 2021 has never signed any simplified public procurement contract with other state agencies and participated in public tenders.

Skyline LLC

Skyline LLC was founded on July 14, 2021, and 2 days after its establishment, on July 16, Borjomi City Hall signed 3 simplified public procurement contracts of GEL 48,814 with it for construction works.

Beka Tsiklauri is the director and 100% owner of Skyline LLC. Beka Tsiklauri also owns Bauen Company. The mentioned company has signed 2 simplified public procurement contracts with a total value of GEL 15,410 with Akhaltsikhe City Hall in 2015 and 2017. In 2016, the company won a public tender of GEL 15,700 also announced by Akhaltsikhe City Hall.

Twenty-Twenty 20-20 LLC

Twenty-Twenty 20-20 LLC was established on August 1, 2020, and after 3 days of its establishment, on August 4, Vani City Hall signed a simplified public procurement contract of GEL 55,596 with it for construction works. On August 20, 2020, and August 10, 2021, Vani City Hall signed 2 more simplified public procurement contracts of GEL 61,108 with the company. Overall, the company received a total of GEL 117 thousand in three contracts. Twenty-Twenty 20-20 LLC has never signed any simplified public procurement contract with other state agencies and participated in public tenders.

Besik Shubladze owns 100% of the Twenty-Twenty 20-20 LLC. Before founding the company, Besik Shubladze was registered as a sole proprietor but has not participated in public procurement. Accordingly, Vani City Hall signed a contract with a company that had no experience in public procurement.

Serv Group LLC

Serv Group LLC was established on July 2, 2020, and 5 days after its establishment, on July 7, Rustavi Mental Health Center LLC signed a simplified public procurement contract worth GEL 2,096 with it for demolition works. Various agencies in the city of Rustavi have signed 26 simplified public procurement contracts with the company in 2020-2021, with a total value of GEL 24,686.

Kakhaber Engeli is the 100% owner and director of Serv Group LLC. Kakhaber Engeli also owns MK LLC, which in 2016-2017, got 17 simplified public procurement contracts worth a total of GEL 7,157, and won two public tenders of GEL 4,200.

Bogi Building LLC

Bogi Building LLC was established on August 10, 2020, and 8 days after its establishment, on August 18, Chiatura City Hall signed a simplified public procurement contract of GEL 8,962 with this company for construction works. Bogi Building has never signed any simplified public procurement contract with other state agencies and participated in public tenders.

Bondo Asanidze and Giorgi Kentchoshvili own 50-50% of Bogi Building. Giorgi Kentchoshvili also owns a 100% stake in Magi LLC. Magi has received 5 simplified public procurement contracts worth GEL 24,452 in 2017-2020. 4 of them were received from Chiatura City Hall, and one from Tkibuli City Hall. Magi has also received more than half a million GEL worth of contracts from public tenders.

Sani 2020 LLC

Sani 2020 LLC was established on August 17, 2020, and in 8 days, on August 25, Vani City Hall signed a simplified public procurement contract of GEL 13,710 with the company for construction works. Sani 2020 has never signed any simplified public procurement contract with other state agencies and participated in public tenders.

Shalva Kashia is the director and 100% owner of Sani 2020 LLC. Before founding the company, Shalva Kashia was registered as a sole proprietor and on December 16, 2018, he got a simplified public procurement contract of GEL 780 from Vani Second Public School for the supply of various food products.

N.KM LLC

N.K.M LLC was established on August 18, 2020, and in 7 days, on August 25, Dusheti City Hall signed a simplified public procurement contract of GEL 9,998 with it for construction works. On September 11, 2020, and July 23, 2021, the company also received simplified public procurement contracts worth GEL 9,650 and 10,073 from Tianeti City Hall. The company has not participated in public tenders.

Genadi Burduli is the director and 100% owner of N.K.M LLC. Before founding the company, Genadi Burduli was registered as a sole proprietor but has not participated in public procurement. Accordingly, Dusheti City Hall signed a contract with a person with no experience in public procurement.

Publication of this report was made possible with the support of the Open Society Foundations and the Ministry of Foreign Affairs of the Kingdom of Norway. The views expressed in this publication are those of Transparency International Georgia and do not necessarily reflect the views of the donors.