Public tenders – flying without navigation equipment

It has been a rough ride for SMEs when it comes to public procurement of government services. The litany of complaints reached sky-high levels with bidders saying that some contracts were elusive and yet the government pronounces itself to be tightly regulated under EU laws and transparency regulations. 

As can be expected, the European Union promotes a strategy of transparent, fair and competitive public procurement across the Single Market in a drive to promote business opportunities, foster economic growth and create jobs. This article will reveal how SMEs try hard to win government tenders and even after failing, 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, which is traditionally cornered by established forms/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 encourages Member states to overhaul the current public procurement rules and for the first time sets out common standards on contracts. The EU itself issues many tenders and constantly struggles to boost fair competition and ensure best value for money by introducing award criteria that place more emphasis on environmental considerations, social aspects and innovation.

It is hoped that EU rules will make it easier locally for small- and medium-sized firms to bid. A typical case occurred which typically challenges the notion that all is fair in love and war. This concerns a WasteServ invitation to tender for the selection of an external auditor to provide it with auditor 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 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 is bound to put to tender calls for engaging an auditor to fulfil its statutory audit requirements. PKF appealed to the Public Contracts Review Board (PCRB – all members appointed by the government) on 15 January, 2015, stating its objection: sensing foul play.

Dr Lia, representing the bidder, approached the Review panel with its views that as WasteServ is obliged under the Companies Act 1995 to submit its accounts for audit, then prima facie nothing changed to fuel WasteServ’s whimsical cancellation of the tender nine months after its issue and after conveniently opening the bids for public display. 

The argument was made that if the parameters of the tender had fundamentally changed as implied by the contracting authority then the rules state that first it returns unopened all bids and then cancel. Regrettably, this was not forthcoming.  The underlying binary code to this poor excuse for a cancellation transpired within the first minute of the hearing in front of the review panel chaired by a retired auditor. The chairman 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 the cancellation, let alone had their opportunity to present their objection. 

The result was a blatant discrimination among the five bidders – i.e., choosing the second cheapest. The remorse in the decision statement by the Appeal board was merely that of feeling ‘perturbed’ by the perceived lack of ‘prudence’ in the contracting authority’s behaviour. No word about verification or affirmation, no intervention or even citing of the proper clause in the regulations, that in fact were not seen to have been properly invoked or upheld by the contracting authority or PCRB respectively, as no transparency was offered or sought at any point.

The remedy: a mere ‘recommended’ refund of objection expenses, that can and often is not upheld by the contracting authority under a claim of covering own objection hearing expenses. 

The public at large – having survived the tales of Panama hats and a vortex of dubious malpractices during the intense election mudslinging campaign – may overlook this case. Voters say that they heard a deluge of salubrious stories in the contest and feel dumb about reading more stories of woe.

Therefore, we may close one eye as it is not an earth shattering example – audit budget was a mere €50,000 – no millions greased palms. Readers may be interested to know that the senior partner of the preferred bidder was shortly afterwards appointed by the government as chairman of a leading local bank. Natural justice leads us to believe that transparency needs to be manifested and be seen to be applied in public procurement not only for procuring of materials but equally so for professional services.

Another injustice occurred during an appeal hearing concerning the five-year audit of the University. PKF were cheapest but were disqualified on a flimsy pretext to favour another audit firm. The latter recently received a direct order of €11.5 million to introduce accrual accounting in government departments. Dr Lia, representing PKF at the University audit appeal, could not attend the hearing and requested a short postponement. The chairman of the PCRB refused to grant it and verdict was passed in absentia against PKF.

Another anomaly is that bidders are not allowed to know the budgeted figure in tenders as this is refused when clarifications are submitted. In case of professional services bidders who are not privy to the contracting authority affairs are flying without navigation equipment. Perhaps 2017 will usher in a reform by the finance minister in order that SMEs enjoy a level playing field.

But not everything is doom and gloom.  The penny finally dropped and recently the government announced changes to its procurement procedures, in a bid to make it easier and cheaper for companies to seek government contracts. The official pronouncement stated that such new regulations will also bring Malta in line with EU directives.

Each ministry will set up its own procurement office, that will be responsible for processing offers for government contracts worth between €10,000 and €250,000 handed out by authorities that fall under their responsibility. At last the government acceded to change the role of the Department of Contracts from that of an operator to a regulator. All calls for tenders will now be made online through an Electronic Public Procurement System and will no longer be judged on price only. The award of the contract will be based solely on the ‘Most Economically Advantageous Tender’ which takes into consideration price, cost/quality ratio and be linked to the subject matter of the contract. Award criteria must also now be contract-specific, budgets disclosed and large contracts are to be divided into lots, in order to assist access to SMEs.  The existing Public Procurement Review Board with its present members shall remain in office – some fear it is old wine in new bottles. 

It is not too much to expect that Malta, having excelled at managing the presidency of the EU, tries to guarantee that revised procurement regulations will make it easier and cheaper for small and medium businesses to bid for public contracts.  Only thus will the four principles of transparency, equal treatment, non-discrimination and proportionality be respected.

George Mangion is a senior partner of PKF, an audit and consultancy firm, and may be contacted at [email protected] or on +356 21493041.