Analysis of procurement of renovating health institutions

Ministry of Health awarded work of painting the premises and toilet renovation in health institutions, worth almost 700 million RSD (565 million without VAT), in negotiating procedure without publishing of call for submitting of bids. This procedure includes inviting of potential bidders to submit bids and publishing of „announcement on initiating procedure“ (instead of „public call“), on Public Procurement Portal. Since transparency of data is ensured, even in negotiating procedure, with the adoption of the present Public Procurement Law, its basic problem is short deadlines.

            It may be that short deadlines influenced to submitting of only five bids for such a profitable and relatively simple work, in a country where construction industry often asks of the state to assist by making capital projects or in some other way. Thereby, one of the five firms (GP NS doo Graditelj) hasn’t fulfilled one of the requests from tender documentation, and therefore left the competition. Remaining four bidders shared the work. Largest share of 267 million was awarded to the company Jadran ad Beograd (joint offer with two more companies - Dijagonala and Bohor doo), company Roofs Beograd received works worth 165 million, and Tončev construction around 107 million. Company Noveko Vranje won one lot, worth 21 million (all amounts without VAT).

            Besides extremely low competition (for 9 out of 18 lots, only one bid was submitted!), this work was marked by several extremely unusual moments. In several cases, where there seemingly was competition, competitors easily "dropped out" of work. Namely, they offered higher prices during the negotiating procedures then they did in their initial offers, which represented basis for the contracting authority to refuse their offers.  Likewise,  in several cases "psychic" bidders offered prices that matched completely or were lower for symbolic amount from the estimated value, although estimated value was never published. In one lot, work was awarded to company whose bid was refused, and in several cases bidders dropped their original offer in negotiating procedure for as much as 60, or even 75%.

            "Guessing" of estimated value, although it was never published, is a common situation in public procurements in Serbia. In this case, in lot 1 (Bor county) estimated value was 20.833.333 RSD, Tončev construction offered 20.800.000, and Roofs twice as more (42.044. 495) eventually the offer from the company from Surdulica was accepted. For Kolubara county estimated value was 18.416.667, the only bidder Roofs offered precisely that amount 18.391.478,90 and won the job. Similar thing happened in Mačva county - estimated value was 21.583.333, Roofs offered 21.430.000 and won the work as a single bidder.

            There were interesting cases were where only bidder increased its original offer during negotiations (!?), which was sufficient for its elimination. Thus for works on health institutions in Zlatibor county, Roofs offered 20,867 million, double the less than estimated value (40,5). Roofs than practically eliminated itself, by increasing the offer in negotiating procedure to 40,150 million, and in repeated procedure works were awarded to Jadran ad (as a single bidder) for 40,5 million.

            For works in Moravčki county, estimated value was 18.416.667, Roofs offered less than 15 million, increased the price in negotiating procedure to 18,3, and in repeated procedure won as the only bidder with the price of 18,4 million. It is interesting that the decision on awarding the contract in repeated procedure (on 14 December), states Šumadija and Podunavski county instead of Moravički county, although that work was even in the first round awarded to the company Roofs. Correct title is mentioned in Notification on awarded contract, uploaded to Portal on December 22nd.

            Works in Braničevo county were awarded in similar manner, company Roofs offered the price of 17,5 million, which would represent proper savings to the state since the estimated value was 25,750 million. However, during negotiating procedure Roofs increased its offer to 24,5 million, which represented basis for turning down the offer, even though it was the only one. In repeated procedure, bid was submitted just by Tončev construction that was slightly higher than final (higher) bid of Roofs - 25,725 million. Almost exactly the same as original estimated value.

            That means that three lots where Roofs was the only bidder in the first instance offered far lower prices than the estimated, at the end the offers were rejected because during the negotiating procedure Roofs requested prices that were higher than the original. After the procedures were repeated, these companies Jadran, Roofs and Tončev shared these three counties, this time with prices that were identical to estimated prices of works.

            Illogical, however regular, appears in the Decision of the Ministry of Health on awarding the contract (404-02-279-16/2015-15 from December 14th), in the part that refers to the lot 14 - health institutions in Raška county. First page of the Decision states that work in that lot was awarded to Roofs, and in page 15 to Tončev construction. At the same time, in the part where reasons for refusing the bids were stated (page 8), it is said that both bids were refused - bid of Roofs because during the negotiating procedure they doubled the price from initial 11,5 million to 21, slightly over the estimated value (20.833.333) and the bid of Tončev construction (originally 23.192.000, was in negotiating procedure lowered to 20,5 million) because that company hasn’t submitted the proof of financial security for realisation of the contract. However, Decision on awarded contract states that the job was awarded to company Roofs for 21 million. That means that company who won the job originally offered the price of 11,5 million and in negotiating procedure raised the price to double the more - 21 million.

            Extremely unusual case in the two most expensive lots: bid of almost 422 million of RSD was submitted by just one company- Jadran ad (along with Dijagonala and Bohor doo) for the works in the institutes and clinics in Belgrade. Bidder, however, during the negotiating procedure offered final price that is 62% less than the original one - 162.166.667, which represented estimated value of works. For works in Belgrade community health centres sole bidder was once again Jadran. Estimated value was 64.666.667 RSD, which Jadran accepted at the end although its original offer was 263.876.873 RSD. That means, that final price was 75,5% less than original offer. Such huge difference in prices logically raises doubts into works being implemented the way it was planned (if the original estimation of expenses was right) or that the bidder was completely certain that none of the other companies that can perform such works will participate.

            Maybe the most unusual is the procurement of works for Nišavski and Jablanički county. Estimated value was slightly over 41 million, Tončev construction offered 40,9 million, and Roofs 98,3. In negotiating procedure Tončev lowered the bid to 10,5 million, and Roofs to 40,1. Tončev construction’s bid was rejected from unknown reasons (in the Decision on awarding the contract there is no explanation for rejection) and offer of Roofs was accepted.

            Equally interesting data, besides numerous situations with suspicions to irregularities and illogicality related to this procurement, that there is no data on whether someone invested requests for protection of rights.

            Potentially risky issue lays in the payment of advance of 100%, that is most likely consequence of the desire not to transfer the assets in the next budget year. That risk is significantly reduced by laying means for securing proper job execution.

           Normally, TS is of the opinion that basis for implementing of this procurement by negotiating procedure could be arguable. 

Namely, Ministary asked of the Public Procurement Office and received their consent to implement this type of procedure "for extreme emergency caused by extraordinary circumstances or unpredictable events". In this case it is about the fact, explained by the Prime minister and the relevant minister, that certain assets appeared in the budget reserve that need to be used immediately.

Transparency Serbia requested the documents from the Government and the Ministry that would confirm the basis for emergency, i. e. for implementing the procedure that resulted in small number of bidders and low competition and the prices that fitted in the planned budget "by chance". It is the document that would show that Ministry timely (even during the budget drafting in 2015) expressed the needs for these investments and why such procurements were not planned earlier.

            In other words, we asked for the answer to the question who caused resolving of this problem with extraordinary measures – financing from the budget reserve and implementing of negotiating procedure – instead of regular course of things. Namely, one of the legal preconditions for implementation of negotiating procedure due to urgency, is that such urgency was involuntary, that it didn’t depend on proceeding or oversights of the contracting authorities. We asked for information on how the Ministry made selection of entities that will be invited to participate in negotiating procedure and how will they determine whether the prices they offered are in line with „comparable market prices“, as it was instructed in the positive opinion of the Public Procurement Office.

Transparency – Serbia

Belgrade, 24 December 2015