Public procurement

Trickery tenders

How do some companies get millions from agreements on increasing the public procurement contracts value

Grădinița nr 2, Rezina
Author: Mariana Focșa
29/12/2017 14026

Only in 2017, the state institutions in the Republic of Moldova spent over MDL 74.8 million for unplanned increases in the price of public procurements made. For this reason, about 700 additional agreements on increasing the value of the procurement contracts were signed. In 2015 and 2016, the price increases approved by additional agreements amounted to MDL 222.2 million and MDL 310.3 million, respectively.  According to the experts, there are several reasons why the public authorities accept this.  Sometimes, these increases are justified, in other cases - these are made because of someone’s interest or unwillingness of the contracting authority to initiate a new procurement process.

Procurements “behind the closed doors”

The largest increases in state procurements made during this year were made for the procurement of construction, repair and restoration works, for which about a quarter of MDL 74.8 million was spent. For the construction of aqueducts, water pipelines, water supply and sewerage installations, additional 25% of the total amount of contract increases was allocated, and for the procurement of medicines and medical equipment 9.7 million more were spent than initially planned in the procurement contracts. Among the services and products for which the companies have requested additional increases in 2017 after winning public tenders are road repair works (4% of total agreements), and procurements of vehicles (2%).

Under the new provisions of the Law on Public Procurement, the reduction or increase in the quantity of goods and/or services contracted may not exceed 15 percent of the value of the contract or balance remaining after the previous decrease in the value of the contracted goods. Such increases or decreases can only take place in duly justified cases without changing the unit price or any other terms and conditions of the bid and other awarding documentation.

 

How did the Police buy cars

Dacia Duster

In the spring of last year, the National Investigation Inspectorate (NII) renewed its vehicle fleet.  Instead of the old vehicles, 42 new cars were “parked” in the NII’s courtyard.  The tender for the procurement of 14 administrative cars, 16 operational cars, 10 off-road vehicles and two minibuses took place in May 2016. At the procurement tender organized by the General Police Inspectorate, on behalf of the NII, four competitors participated: Dat Sun Auto SRL, East Auto Lada SRL, DAAC Autosport SRL and DAAC Auto SRL. The Inspectorate has planned to spend MDL 11.6 million for these procurements. The following sister-companies: Daac Autosport and DAAC Auto were declared winners of the tender. Those 16 Skoda Rapid and two Ford Transit, procured for the NII administration from the first company cost MDL 4.9 million and for 14 Dacia Logan and 10 Dacia Duster bought from DAAC Auto, the GPI paid MDL 5.7 million, thus saving one million MDL from those initially planned for these purchases.

11 cars brought “through the back door”

The money, however, has not remained in the institution's budget. In August 2016, three months after these procurements, without announcing a new tender, NII purchased other 11 vehicles from the same companies, spending another MDL 2.6 million for that. The new procurement was made based on a simple Inspectorate’s request to the Procurement Working Group, without providing any justification. The working group, without asking for any additional arguments or details, the following day, ordered the increase of the value of the contracts with DAAC Auto SRL (by almost one million MDL) and DAAC Autosport SRL (by about MDL 1.7 million).

The procurement contracts with the two companies have become by 19.27% more expensive (DAAC Auto SRL) and by 29.35% (DAAC Autosport SRL), provided that the legal norms do not allow for any increase of more than 15% in the case of public procurement, and only in duly justified cases.

Increased value of contract, sensitive issue at GPI

The officials responsible for the procurement within the GPI refuse to provide any explanations about the 11 cars purchased based on an additional agreement from DAAC companies. Being contacted by telephone, Reghina Moscalciuc, senior inspector of the Procurement and Logistics Service, GPI, initially informed us that she did not know anything about this case and needed time to document herself on this subject. On the following day, when we called her again, the official insisted she knew only what was indicated in the procurement procedure file, which she had previously sent to us. For further details, Moscalciuc has redirected us to the Deputy Head of the Procurement and Logistics Service, Alexandru Botan, who was not to be found.

Igor Scerbinski, Deputy Director of DAAC Hermes, however, assured us that the norm admitted by the law for these increases was not violated in these procurements. “According to the law on tenders, it can be increased by a few percent. I think up to 10%, but I have to check. Probably, on this basis, the police increased, but it has to be checked. Other changes cannot be made according to the law. Probably, the Police had some money and they – within the limits of this percentage - have increased the volume of procurements”, Scerbinski told us.

DAAC – annual sales of MDL 146 million under public procurements

During December 2015 - November 2016, the GPI purchased 67 cars in total, all from DAAC Auto and DAAC Autosport.  The purchases cost was of MDL 17.2 million.

The two companies are part of DAAC concern, headed by the businessman Vasile Chirtoca, a member of the Chisinau Municipal Council on behalf of the Party of Communists. The companies in this concern are the main car suppliers for the state institutions. Only during 1 January - 30 November 2017, the DAAC group companies sold the means of transport totaling MDL 146 million to the state institutions.

Raises on a conveyer

In April 2016, the Edinet Rayon Council organized a tender to contract a company to repair the local roads in the rayon. The amount earmarked by the rayon authorities was of MDL 5,586,667. Four companies participated in the tender.  Nouconst SRL, which proposed the lowest price for the works, i.e. MDL 4.8 million, was appointed as the winner and was supposed to perform the works in four months. The term of validity of the contract was set for 7.5 months and the execution time of the works was of 4 months.

Five months after signing the contract, when it was supposed to finish the works, the Rayon Council and Nouconst SRL increased the value of the contract by MDL 719,729, or by 15% of the initial value. As a result, the reparation of the local roads in Edinet ended up costing by MDL 30,000 more than the Council originally planned to spend.

Increasing the value of contracts after winning the tender is a common practice for Nouconst.  In 2015, within seven months, the company gained agreement of increases in six other cases, where it has undertaken the responsibility to perform the works for the state institutions. Out of these increases, Nouconst received in addition more than four million MDL.

We tried to get a reaction from the Edinet Rayon Council about the increases in the contract value with Nouconst SRL.  After we were passed from one official to another, Ion Paduca, head of Edinet Construction Department, assured us that in this case the value of the contract could not be increased. However, Paduca said he would check the information and, with the superiors' agreement, will come back to us with more details. Until the publication of the investigation, Paduca did not get in touch with us.

Nouconst, a company affiliated to Iurie Chirinciuc?

The company Nouconst SRL is managed by the businessman Marin Sirbu. He is also the founder of this company. In April 2017, Sirbu was detained by the anticorruption prosecutors in a corruption case, being accused of complicity with the Minister of Transport and Road Infrastructure at that time, Iurie Chirinciuc, exerting pressure on a company winning the tenders financed by the European Investment Bank (EIB) aiming at constraining it to give up part of the volume of works to certain companies. During 2016-2017, the Minister and Head of the State Road Administration would have created impediments for the winning companies by failing to endorse certain documents or delaying the approvals necessary for the execution of the works.

In August 2017, the Chisinau District Court sentenced Chirinciuc to one year and four months of imprisonment for traffic of influence and abuse of power. Marin Sirbu, Chirinciuc's accomplice, was charged with a fine of MDL 45,000.

A dubious tender in Teleneşti

In Teleneşti, the road repair works also escalated significantly after the local authorities have agreed with the company Nisip-SI SRL, which committed itself to deliver gravel for repairing the streets in the city of Telenesti and Mihalaşa and Mihalaşa Noua villages. The company that won the tender in June 2016 was the only bidder admitted after three other bidders were disqualified or withdrew themselves.

The file of this tender, which we have studied, reveals many strange things.  Hence, the technical specifications and price specifications in the Tender Specifications, prepared for this tender and signed by the Deputy Mayor of the city of Telenesti, were established based on the offer and prices of Nisip-SI, which subsequently participated in the tender and won it.  Furthermore, after being declared the winner of the tender for the delivery of certain construction materials, Autovertrans SRL suddenly renounced to the contract. The letter of refusal of the company addressed to the City Hall of Teleneşti was sent on 15 July 2016. Four days earlier, on 11 July, the working group on tender organization grants the entire contract to the company Nisip-SI, referring to Autovertrans's future refusal.

The same company, several agreements on value increase

The contract with Nisip-SI, worth MDL 1.4 million, was signed by Telenesti City Hall on 18 July 2016.  Half a year later, in December 2016, under the pretext that the sewer system construction damaged the roads in Teleneşti, the procurement working group within the City Hall ordered the increase by MDL 221,625 (15%) the value of the contract concluded with the company that delivered gravel, without specifying in the documents, which particular roads the gravel was purchased for.

The construction material was stored in the mounds on the roadsides without supervision for several months. Telenesti City Hall has contracted the road repair works for which the gravel was procured only in December 2016, again from Nisip-SI. The execution time of the works was 1.5 months - during winter.

After other four months, in a new public tender, the public authorities in Telenesti procured again gravel from the same company, and again to repair the streets in the city of Telenesti and Mihalasa and Mihalasa Noua villages.  The value of the new contract was of MDL 1.6 million, that was, as much as the city first paid for the gravel bought from Nisip-SI.  Similar to the previous procurement, in just 5 months after signing the procurement contract, the value of the contract was increased by 13.48% and the final amount reached MDL 1.8 million.

The Company of the Member of the Council from the Democratic Party

The company Nisip-SI SRL in Verejeni, Telenesti Rayon, was founded in 2000 by Vitalie Istratii and Nicolae Strajescu, the latter being also the company's administrator, as well as a local councilor from the Democratic Party in the Council of the village of Verejeni, Teleneşti Rayon. During 17 April 2015 – 13 November 2017, Nisip-SI SRL obtained state contracts amounting to MDL 10.5 million. In most cases, the company won tenders in localities from Telenesti Rayon, led by representatives of the Democratic Party.

Being contacted by us, the Mayor of Telenesti Vadim Lelic told us that the gravel procurement contract of 2016 and then the new gravel procurements in 2017 from the company Nisip-SI were needed because the roads were constantly ruined.

“We did not include in the contract the name of the streets that the gravel was going to be delivered to because we did not know which street would require urgent repair”, the mayor replied annoyingly. Because he could not answer many questions about the tenders won by Nisip-SI (invoking lack of time), Lelic suggested us to talk to Natalia Iacob, the City Hall Procurement Manager. After listening to our questions, the civil servant told us she was on vacation and asked us to come back in two weeks.

We tried to contact Nicolae Străjescu, but we could not reach him.

More expensive works in Rezina

In November 2016, in Rezina, an additional agreement to increase the volume of works was signed for the thermal insulation of kindergarten no.2 in the city. For the works financed at the level of 71 percent by the Energy Efficiency Fund and the rest from the local budget, a contract worth MDL 1 million was initially signed with Galicus SRL. It was supposed to cover with polyester tile the building within three months of signing the contract, i.e. by 17 August 2016.  On 1 August of the same year, based on an order of the mayor of Rezina city, Simion Tatarov, a commission that included an accountant, a kindergarten Methodist, a member of the city council, the deputy mayor of Rezina, and the technician responsible for the works done assessed the construction works carried out by Galicus SRL and found that some works did not correspond to the volumes included in the tender technical specifications, while in other cases, the company carried out additional works not provided for in the contract. In order to cover these additional expenses, the commission decided to pay the company MDL 194,650 (18% of the value of the initial contract - n.r.).  Subsequently, in the worksheet attached to the contract, it was found that the cost of certain works was higher than that indicated in the main contract signed with Galicus.

The Mayor of Rezina, Simion Tatarov, says that the cost increase was necessary because the work volume was not correctly calculated. According to the local official elected, the thermal insulation of the kindergarten was completed only in November 2016. However, the technician responsible for the works conducted at Kindergarten no. 2 in Rezina contradicts the mayor. According to this source, the works were finished in August 2016, and the company proved to be so compassionate that it performed all the additional works not covered by the contract before signing the value increase agreement. The experts say it is a serious violation of the law.

“Increases may only be made in duly justified cases”

According to Valeriu Secaş, Deputy Director of the Public Procurement Agency, in justifying the increase of the contracts, the contracting authorities invoke various and multiple reasons: they need more, they have not correctly estimated, additional needs have arisen, financing became available, they have saved money and they have additional necessities. The law allows them, in duly justified cases, to increase the value of purchases, but not more than by 15% of the initial value. When it comes to higher increases, the contracting authorities need to conduct a new procurement procedure. “The Public Procurement Agency can verify these increases only in the post-contract audits”, the official explains, but these kinds of audits are only performed since May 2017.

Serghei Merjan, expert of the Association for Efficient and Responsible Governance, AGER: “There are cases of increase due to the authorities' unwillingness to initiate a new tender”

“In the public procurement practice, there are various reasons for signing agreements on value increase. There are situations of increasing the contracts for objective reasons, when there is a need for larger volumes of works or when an incorrect initial project evaluation was carried out. There are also situations of increasing the contracts’ value based on personal interest.  There are also cases of increase due to the contracting authority's unwillingness to initiate a new procurement process. In the latter case, the agreements on contract increase can be interpreted as single-source procurements, which are only allowed in exceptional cases.

In case of works procurement contracts, the increase in the works volumes and the value of the contracts respectively shall be carried out only after the joint assessment by the contracting authority and the company of the additional works and the costs involved.  It is a violation of legislation when some businesses start additional work before their need is determined by evaluation and by signing any additional agreements to amend the original contract.”

This investigative article was developed with the support of the Project “Strengthening civil society capacities in the field of open data use", implemented by the United Nations Development Program and financed by the SlovakAid Transition Knowledge and Experience Transfer Program of the Slovak Republic. All opinions belong to the authors/author and do not reflect the official position of UNDP Moldova, the Government of the Republic of Moldova, the Government of the Slovak Republic or their affiliates.

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