On good governance and transparency

SMEs try hard to gain access to winning government tenders and even after they fail they toil to remain competitive and technically competent to be eligible for the next opportunity.

It goes without saying that prejudice against newcomers on the market is ingrained in the establishment, which is traditionally cornered by established firms and consultancies. This reigns supreme (particularly for professional services) and many SMEs wait in the eternally re-generating queue to enter the Pearly Gates of accredited firms.

In this cognizance one reads about legislation at EU level, which aims to overhaul the current public procurement rules and sets out common standards on contracts to boost fair competition and ensure best value for money by introducing new award criteria that place more emphasis on environmental considerations, social aspects and innovation. It is hoped that these rules will also make it easier for small and medium-sized firms to bid.

A typical case of incorrect procedure in public procurement occurred two years ago concerning an invitation to tender issued by WasteServ for the selection of an external Auditor to provide audit services for five years. The author, applying on behalf of PKF, tendered and was the cheapest among five bidders (criteria for selection was exclusively on price). The evaluation committee wrote to PKF on 1 December, 2014 (some nine months later) informing it that the tender had been cancelled on the grounds that “the economic or technical parameters of the project have been fundamentally altered”.

This is weird. WasteServ is a limited liability company and it is bound to put to tender calls for engaging an auditor to fulfill its statutory audit requirements. PKF appealed to the Public Contracts Review Board and the chairman made reference to a direct order having been awarded by WasteServ to one of the other bidders in the original public call. It was not the cheapest bidder therein, at a time when the cheapest bidder and appellant had not yet even been notified of the said cancellation, let alone had their opportunity to present their objection.

Then it follows that ‘the economic or technical parameters of the project’ of their intrinsic nature can have no opportunity for ‘fundamental alteration’ as had been suggested in the cancellation notice and this since the reason upon which the recommendation for cancellation of this tender was based, lacked in its totality any empirical, statutory or other basis that following defensible logic could ever render cancellation of the tender justified.

In the face of this, the rule of law will permit no ‘economic or technical parameters’ that may be conceived by the wildest stretch of the WasteServ’s imagination that will, as a result, directly and inextricably contribute to the aggravation of an already defaulting position in breach of the law by the same authority. As PKF is the identified cheapest bidder in a public call for tender where the subject matter is the performance of a mandatory statutory audit, the purported cancellation of this tender also invariably, directly and inextricably causes the rights of PKF to concurrently be severely breached and prejudiced in what is being perceived to be a discriminatory action against the aggrieved bidder.

So the only solution is the tortuous and unchartered road in court litigation. During the previous administration, one recalls how the opposition spokesman for the environment, Labour MP Leo Brincat, had published a letter from WasteServ’s former auditors complaining to the ex-finance minister of having been berated by his former head of secretariat over their audit reports. It was the outgoing auditor who had in fact made reference to numerous shortcomings in their audit of the WasteServ accounts, especially over an inadequate asset inventory that failed to reconcile a book value of €66 million with the original cost of €86 million.

This had allegedly prevented it from issuing an audit opinion on the existence and valuation of the six assets in question. In another instance it was the Auditor General (NAO) who commented unfavorably in a report entitled ‘An Analysis of WasteServ Malta Limited’s Procurement: A Case Study Perspective’.

The main objective of this audit was to determine whether WasteServ Malta Limited (WSM) procurement practices were compliant with and adhered to pertinent public procurement regulations.

No wonder that the Auditor General somewhat got hot under the collar. He reported misgivings on a randomly selected five case studies amounting to €34.32 million. In addition to the five case studies, NAO reviewed the appeals lodged by third parties in relation to WSM contracts with the Public Contracts Review Board (PCRB) during the period 2011-2012. One notes that discrepancies on appeals by aggrieved bidders may have been indicative of poor estimate compilation, with insufficient attention directed towards the sourcing of essential market intelligence.

The case studies included the construction of a leisure area at the Marsaskala Family Park and the millions invested in improvements at the Sant’Antnin Waste Treatment Plant and Material Recycling Facility. Moving on, one is saddened to read in another NAO report that out of the 15 appeals lodged against WSM during the period 2011-2012, 10 of these objections were upheld by PCRB. As always the public expects to be adequately served by government agencies to follow full accountability, transparency and good governance.

Can this episode and others like it be a harbinger of the difficult times which SMEs face in vying for public tenders, particularly for professional services? The recent call by the president of the Chamber of Commerce for improved good governance rules in public services did not come a moment too soon and acted as a precursor to the conclusion of the NAO investigative report on Gaffarena illicit property deals.

So perhaps amid this wave of uncertainty, one cannot be surprised to notice how last year saw a number of established consultancy and audit firms feel the temperature being too hot in the kitchen. They faced a dilemma and after some deliberation engaged brokers to find them a larger partner to merge their business, thereby consolidating their position in the market.

This is not a trend that is unique to Malta since we read about a number of takeovers in the EU among smaller firms which due to the complexity of the market bite the bullet to merge with other mega firms – with the hope of not losing their identity and at best, retain market share.

A number of mergers come to mind particularly in the ICT, audit, legal and advisory services. One may ask if this was caused by an active economy galloping at a fast rate of 5% increase in annual GDP. Definitely this merger activity warrants a business environment complemented with a better understanding of the basic rules of good governance.

Here one notes how Alert Communications, a respected SME in the ICT market, has relocated to join a Big Four audit firm. Leading consultancy firm EMCS previously headed by Adrian Said, now chairman of Projects Malta, merged with audit firm Grant Thornton. Last November the established accountancy firm Spiteri Bailey & Co indicated it would merge with the member firm of RSM and eCubed Limited, a specialist consultancy firm managed by the well known economist Dr Gordon Cordina, who inter alia conducted the Gozo subsea tunnel feasibility, joins the accountancy firm headed by Brian Tonna.

Other regroupings and mergers among law firms will continue during 2016 as tougher EU directives and dispositions will be transposed in the domestic law. Natural justice leads us to believe that transparency needs to be manifested and be seen to be applied in public procurement for all types of services.