Never mind the storm, you’re safe here

It is very encouraging for small and medium sized enterprises to read the latest announcement by the European Commission concerning economic forecast for winter 2017. The forecast shows how out of the 28 member states Malta’s economic activity is singled to perform well above the EU average. In December 2016, annual real GDP growth for 2014 and 2015 was revised upwards to reach an average annual rate of 7.9% - the highest since EU accession. 

The revisions reflect additional information from regular structural business surveys which are centric to external trade data, particularly service exports. This is all very encouraging but readers may ask is the trickle down economic effect truly working? 

Certainly, not all economic operators are convinced that this exceptional bliss is reaching all and sundry. The omens are certainly favourable for those who manage to catch the sympathetic ear of government and thus can flourish and expand their business unfettered by risks of missing the chance of savouring the never-ending jam jar. 

They are the anointed ones who are bestowed with positions of trust and need not compete against all odds to book a seat on the proverbial gravy train. Naturally, competition and fair play is a hallmark of a transparent administration but for some, who have discovered much to their chagrin, the low lying fruit has been picked and consequently they need to stretch out their arms further to reach the fruit high up on the top branches. 

This can be risky and fraught with disappointments as this sad episode will reveal. This is a true account of a professional firm who qualified as the cheapest bidder in a tender for the provision of internal audit services (Arms Ltd. reference CT2076/2015). 

It is common knowledge that the billing system at Arms is substantial and reaches annual volumes exceeding €500 million as it acts as a collecting agent for both Enemalta and Water Services Corporation. 

Indeed the tender estimate was for €200,000 excluding VAT, and six major audit firms placed competitive bids. PKF’s bid was compliant and was the cheapest of the lot. No selection was made after the statutory 90 days set for adjudication yet a further six months passed when in April 2016, Arms Ltd., informed bidders that it had cancelled the tender stating the oft-abused clause “The economic or technical parameters of the project have been fundamentally altered”.

PKF, sensing foul play, appealed in front of the Public Contracts Review Board (PCRB) for damages and lost. The latter is the only channel for SMEs (except for court of law) to seek redress. It is interesting to note that Arms did not request an extension of bid validity period which it is authorised to do under section 8.3 of the general rules, but on the contrary it waited for six months after the schedule of bids was made public to cancel the tender in an open-ended loophole to bypass their contractual obligations and avoid making an award. 

It transpired that after the end of the 90-day statutory evaluation period there was a minor change in the board of Arms Ltd. 

The new board opted not to honour obligations set under the tender even though it never notified the qualifying bidder with its intention; on the contrary to add salt to the wound it procrastinated for another six months to cancel the process. 

This is an unreasonable and unacceptable length of time to leave a bidder with qualified staff on hold, in the expectation that it will be awarded such a tender. 

Dr Lia acting as counsel for appellants during the appeal stated inter alia.... “Arms Ltd., at the appeal stage is stating that the decision to cancel the tender was one taken legitimately by the newly constituted Board of Directors”, and while in a Board of Directors there should legally be continuity in the policies despite changes in the members of a Board, he agrees that the Board had a legitimate right to cancel the tender, however what he does not agree with is that Arms Ltd., could cancel the tender on the ground that it elected that is, ‘changes in technical and economic parameters’. 

This the contracting authority could not do, because this ground for tender cancellation is validly invoked where the change in technical and economic parameter is occasioned by forces outside the contracting authority’s control and not when such change is directly and exclusively caused by the same contracting authority, as was in this case, and in the opinion of Dr Lia ... Arms Ltd., cannot do this because the law itself does not allow it. 

Inter alia the appeal board ruled that “neither appellants nor PCRB can contest the decision of Arms Ltd. in no way whatsoever since policies are altered to better the performance of Arms Ltd., and in this particular case, as it is quite normal, newly appointed board members bring in new ideas.” 

This reeks of flawed justice. Arms Ltd., had itself called for clarifications from bidders in October 2015 but decided to cancel the tender almost six months later on 12 April 2016. The board of directors met on 13 January 2016 and decided to bypass the tender and alternatively start outside recruitment of audit staff. 

This case blatantly shows a Big Brother approach – SMEs are at a disadvantage when taking recourse and charged a hefty fee of €1,500 by PCRB to defend their rights. Alas the PCRB in its final decision nonchalantly stated that it felt “perturbed” about the delay in the notification of Arms Ltd., to cancel but did not lift a finger to remedy the alleged miscarriage of justice. 

Another unusual case refers to a tender for audit services issued by WasteServ two years ago – this time to appoint an external auditor to provide statutory audits for five years. The tender was successfully contested by PKF, which resulted to be cheapest and fully technically compliant. 

Almost identical to the Arms Ltd. case, the evaluation committee wrote on 1 of December 2015 (some nine months after the 90-day statutory period) that the tender had been cancelled on the grounds that quote: “The economic or technical parameters of the project have been fundamentally altered.” This is weird. PCRB made reference to a direct order having been awarded, to one of the other bidders in the original public call, and who was not the cheapest bidder therein, at a time when the cheapest bidder and appellant had not yet even been notified of said cancellation let alone had their opportunity to present their objection. 

The result was a clear example of discrimination among the five bidders i.e., by preferring the second cheapest. The senior partner of the preferred bidder was recently appointed by government as chairman of a leading bank. A questionable move by WasteServ’s directors lied in an internal resolution empowering the CEO to issue a direct order to the second cheapest bidder. It justified this on grounds that the professional services required were altered so as to cover both a statutory audit and an IT inspection (the IT task was never listed in the tender document).

The Review Board’s final decision found in favour of WasteServ, stating that all bidders habitually accept any unexplained cancellation of said tender and the volte face did not flutter its feathers - condoning the irregularity that a direct order was issued. It ruled that such manoeuvres are permitted under the relevant regulations.

In conclusion, the best advice to unlucky bidders is to be contrite and not to seek redress - console yourself and in face of adversity try to hide your head in the sand pretending that Malta is the isle of milk and honey where transparency and good governance are the hallmarks of the best economic performer in the EU for winter 2017.

George M. Mangion

[email protected]

The writer is a partner in PKF an audit and business advisory firm