Legal firms took over €536,000 on privatisations

The ministry for the economy has declared it will address shortcomings identified by the National Audit Office in the way legal firms were being engaged by Mimcol’s privatisation unit (PU) on its privatisation processes.

“The previous administration’s methods of procuring legal services left much to be desired and new, more transparent procurement procedures must be followed,” the ministry said in a reaction to the NAO report.

Mimcol (Malta Investment Management Company), the government’s investment arm, has already appointed a procurement committee headed by the Mimcol deputy chairman, management heads and legal chief.

The ministry has also said it will not have the Mimcol chairman and other board members appointed as members of the Privatisation Unit board, contrary to the practice exercised by the previous administration. The PU’s role is being separated from Mimcol, as well as having the PU’s premises relocated elsewhere.

The NAO report investigated the procurement of legal services by the PU between 2008 and 2013, specifically to three legal firms for four privatisation processes. The total cost was of €536,439.

Out of a total of €536,439 in legal fees, €391,880 went to one legal firm, namely Fenech & Fenech Advocates. This equates to 73% of the total fees disbursed for legal fees during the period under review. 

Of particular concern was the fact that the engagement of legal services for the privatisation of Malta Shipyards Limited was taken following a meeting with finance minister Tonio Fenech and transport minister Austin Gatt (pre-2013). “The point of contention in this regard further intensifies when considering that the same agreement with Fenech & Fenech was extended to encompass the Ricasoli Tank Cleaning privatisation process and the yacht marinas privatisations.”

No formal letter of engagement stating the terms of engagement was drawn up and signed by former PU officials, Mimcol and Fenech & Fenech Advocates.

However the NAO noted that the urgency of appointing Fenech & Fenech was down to the firm’s ample experience in maritime law.

But the NAO said it was unable to establish whether all legal expenses incurred by Mimcol were recovered from the Malta Shipyards Ltd, saying that Mimcol’s chief financial officer – who was also MSL’s liquidator – failed to cooperate with the NAO, “a notable shortcoming and a matter of due concern.”

Another legal firm, Mamo TCV, was also Transport Malta’s in-house law firm when it provided legal services for the yacht marinas’ privatisation

As regards the legal assistance provided with respect to Yacht Marinas Privatisation, the chosen legal firm was Mamo TCV, which at the time was Transport Malta’s in-house law firm.

Although the assigned work was deemed an extension of the firm’s in-house engagement, the NAO report states that the rates payable to Mamo TCV for legal work related to the privatisation “were revised upwards.”

In another privatisation – the re-concession of the lotteries licence – the legal firm received a direct order of €125,000 without final approval from the finance ministry.

Despite an invitation for proposals, none of the five selected legal firms were informed of the criteria that the advisory committee based its final decision on. “GVTH, the firm selected to provide such legal services, submitted the most financially favourable offer out of the contracted firms.”

But GVTH did not seek the PU’s approval for incurrence of fees over the number of exceeded hours of work, and that the vetting of invoice payments had been “weak”.

In its report NAO also noted a general lack of clarity in the delineation of responsibility between PU and MIMCOL with respect to the privatisations under analysis.

This was mainly manifested in the payment processes reviewed, which lacked a coordinated system of invoice endorsement, key in ensuring the appropriate disbursement of funds. NAO considered the system of checks employed as weak, with different parties involved assuming that the other party was responsible for specific processes and tasks. Furthermore, NAO noted that no clear responsibility with regard to the issuance of the letter of engagement to firms engaged to provide legal services existed.