6 December 2013, TBILISI – Transparency International (TI) Georgia analyzed more than 430,000 non-competitive government contracts awarded between December 2010 and September 2013. In 2011, the government issued direct contracts worth more than GEL 959 million, GEL 1.17 billion in 2012 and approximately 450 million in the first nine months of 2013. Last year, these contracts accounted for 18% of all government spending, equal to 4.7% of the Georgian economy (GDP). TI Georgia’s new report, entitled “Simplified Procurement – Corruption Risks in Non-Competitive Government Contracts” found that the amount of directly awarded contracts dropped after the 2012 parliamentary elections but direct contracting has been steadily increasing in recent months.

Direct procurement is likely to result in wasteful spending, as there is no opportunity for other qualified bid for the same contract and bring down the price. The award of contracts outside the transparent e-procurement system also leads increased corruption risks, as contracts may be given to companies that are linked with the government or that support the ruling party.

In 2012, the United National Movement received donations of GEL 6.6 million from individuals who, according to the public registry, were linked to businesses that received non-competitive contracts with a total value of more than GEL 160 million the same year (the same businesses had received GEL 110 million in 2011).

For 2013, TI Georgia found that the director of Elita Burji, a company apparently owned by former Prime Minister Bidzina Ivanishvili through offshore entities, donated GEL 50,000 to the Georgian Dream campaign, while the company received non-competitive and classified contracts of more than GEL 80,000 from the Ministry of Interior.

Overall, there appeared to be fewer cases of possible kickback payments to the ruling party around the Presidential elections, but the risk that directly awarded contracts are misused for indirect party financing persists nonetheless.

TI Georgia found that companies fully or partly owned by several current and past Members of Parliament had benefitted from non-competitively awarded government contracts:

• MP Gocha Enukidze (Kia Motors, Iberia Servici): 415 contracts for GEL 30.9 million;
• MP Sergo Khabuliani (Cekuri): 16 contracts for GEL 12.3 million;
• MP Kakhaber Okriashvili (PSP, New Hospitals): 129 contracts for GEL 3.83 million;
• Former MP Kandid Kvitsiani (Enguri 2006, New Construction): 17 contracts for GEL 31.9 million;
• Former MP Temur Kokhodze (Tegeta Motors): 214 contracts for more than GEL 7.4 million;
• Former MP Aslan Tavdgiridze (Khino): 11 contracts for GEL 5.59 million;
• Former Member of the Adjara Supreme Council Revaz Ardzenadze (LLC Pirosmani): 9 contracts for GEL 3.92 million.

The largest directly awarded contracts by the Georgian Dream government (>GEL 5 million): 

A systematic analysis of the companies benefitting from non-competitive government contracts and their ownership showed that several enterprises have links to public officials.

LLC New Energy, a company that according to Ministry of Finance investigators is owned by Caesar Chocheli, the former governor of Mtskheta-Mtianeti, received non-competitive contracts for GEL 69 million in 2011 and 2012. Ceasar Chocheli disputes the Ministry of Finance’s allegation that he was the beneficiary owner of New Energy, the case is currently in court.

LLC Meno International, a construction company co-owned by Irakli Chikovani, who until spring 2013 served as the Chairman of the Georgian National Communications Commission, received direct contracts of GEL 36.9 million, his Magi Style more than GEL 1 million.

LLC Anagi, a construction company owned by Nana Aroshidze, wife of Zaza Gogotishvili, a member of the Supreme Council of Adjara from 2008 to 2012, received 36 non-competitive contracts worth GEL 59.2 million while her husband served in the autonomous republic’s Parliament, including GEL 10 million from the Adjaran Ministry of Sport.

LLC Evrocandela received a non-competitive GEL 2.1 million contract for the installation of lights by the Zugdidi municipality owned Anaklia-Ganmukhuri Resorts only three weeks after the company was created. Evrocandela’s co-founder became an official at the Ministry of Regional Development in September 2011, a few weeks later the company received another GEL 600,000 contract from the Municipal Development Fund.

LLC Lebe, a construction company from Kaspi, received non-competitive contracts of more than GEL 450,000 from the local municipality while its 50% owner, Levan Demetrashivli, was an official of the same local government body.

Directly awarded government contracts by Georgian government bodies, including for small purchases, have become available online in spring 2013. Few if any other countries have established a comparable level of transparency over government spending, allowing for a new level of public scrutiny.

Recommendations:

• The government should seek to further decrease the volume of directly awarded contracts and amend the law on procurement so that only in narrowly defined scenarios, direct contracting can be used.
• Legal loopholes should be closed that exempt certain contracts from being published online, including all direct contracts of the Ministry of Interior and spending from government reserve funds.
• As part of planned local government reforms, internal oversight mechanisms on the local level should be strengthened.
• Investigative government bodies including the State Audit Office should increase their efforts to scrutinize public spending. The government should ensure the political independence of these bodies and that they are provided with sufficient resources.

Corrections and clarifications:

• The table with the largest direct contracts awarded under the current administration included contract to Magticom. In fact, this contract was not directly awarded, but through a competitive process.
• We better reflected that Ceasar Chocheli disputes the Ministry of Finance’s allegation that he was the beneficiary owner of New Energy, the case is currently in court.
• Due to an editing error, we attributed ownership in Supta Samqaro Acharashi to Kakhaber Okriashvili. In fact, he is not affiliated with the company. We apologize for the mistake and corrected the numbers of direct contracts and their values accordingly. Okriashvili told TI Georgia that direct purchases from the government only account for 0.2% of PSP’s turnover. According to Okriashvili, New Hospitals inherited the obligation to provide medical services to specific government bodies – the Levan Samkharauli National Forensics Bureau, the Ministry of Defense, the Ministry of Corrections and Legal Assistance and the Ministry of Health and Social Affairs of the Autonomous Republic of Ajara – which account for the directly awarded contracts.

The report was prepared with financial support from the Open Society Georgia Foundation, the Official Development Aid of the Slovak Republic (SlovakAid) and the Swedish International Development Cooperation Agency (Sida). The content and opinions expressed in the report are those of Transparency International Georgia and do not reflect the position of the donors.