As the defence funding increases, it is increasingly important to plan the needs of the National Armed Forces and to have a proper procurement system to provide them. The State Audit Office, after performing an audit of NAF provision and supply system’s efficiency, advised the Ministry of Defence to improve the long-term planning of NAF provision, simplify the organization of procurements and more utilise the procurement procedures that are suitable to the specifics of the industry.
An effective provision and supply system is one of the strategic resources for building the country’s military capability, and the development of the armed forces and the achievement of combat readiness is only possible with proper and timely acquired equipment. With the rapid increase of the state budget financing, the defence field faces the challenge of effectively utilizing the funds available in multiple directions simultaneously.
“2% of GDP is the amount of funds that will be available to the defence industry. However, this does not yet reflect the results achieved. Latvia should be among those NATO members who is able to use the available funding wisely. This is not possible without an effective provision and supply system, so the State Audit Office positively evaluates the progress made by the Ministry of Defence towards improving the field. By implementing the audit recommendations, we will continue our cooperation to ensure that the provision planning and supply of Latvian Armed Forces is fully in line with NATO’s military logistics principles,” Auditor General Elita Krūmiņa explains the importance of the audit in the formation of the country’s military capability.
The Ministry of Defence as a strategic level institution in the planning of NAF provisioning so far has mostly changed the procurement procedures, with a lower focus on long-term provision planning principles. As a result, the industry has not developed an understanding of the importance of sustainable planning of needs, focusing more on the current year’s procurements and funding acquisition. For the organization of procurements, the information about the needs is obtained from NAF units — “from bottom to top”, not based on the strategic level. In such a system. It is difficult to predict common needs and manage the available financial resources wisely.
The audit concludes that the procurement process in itself is encumbered and ineffective. The understanding of the central purchasing authority of the defence industry (State Centre for Defence Military Objects and Procurement — VAMOIC) about the procurements for the needs of NAF needs significant improvements. The auditors found some formal bureaucratic activities and excessive orientation on the process itself, not the motivation to achieve results. The NAF still are not being relieved from carrying out procurement: 40% of all procurements are carried out in units in a decentralized way, as well as 30% of centralized procurements still are under the responsibility of NAF. This requires expert level expertise in procurement from NAF unit personnel, which is not possible, since the NAF soldiers have other direct tasks.
While auditing the procurements, the State Audit Office did not find any violations of normative acts, however, a new trend has emerged — the procurements are terminated even due to minor difficulties. Both VAMOIC and Ministry of Defence should bear responsibility for this by eliminating barriers in processes and inter-institutional cooperation, as well as the NAF themselves should more actively maintain their interest in the success of the procurement process as an ordering party.
Since 2011, the Law On the Procurement in the Field of Defence and Security has been in effect, which is specifically tailored to the specificities of procurement in the military field. The audit concludes that there is a lack of expertise and experience in the defence department to apply this regulation, which is why it is used in less than 5% of cases. The Public Procurement Law is often applied to the procurement of military goods, and only during the procedure it is decided to apply the special regulation.
Proficient use of special regulation provides several benefits for increasing the procurement efficiency. For example, it is initially possible to choose safe and reliable cooperation partners, including through transnational cooperation with armed forces. It also requires a thorough assessment from the national interest point of view, in order to choose the best solution to ensure the combat capability of the armed forces. The State Audit Office invites the Ministry of Defence to use the special procurement regulation more often and to develop the expertise of their procurement specialists, so they would always choose the most effective approach.
The audit “Effectiveness of the National Armed Forces Provision Planning and Supply System” was conducted for the period from January 1, 2014 to June 30, 2017. It analyses the information on 1,000 procurements, including 456 centralised procurements conducted under the Public Procurement Law, and 56 procurements under the Law On the Procurement in the Field of Defence and Security. For the evaluation of audit issues, the EU, NATO, OECD, and other practices and principles in the planning, implementation and military logistics in the field of defence and security were analysed.
In the audit, the State Audit Office provided 21 recommendations to ensure that the armed forces provision planning system provides the support for gradual, sequential and result-oriented provision of the needs of the armed forces. The Ministry of Defence agreed to the recommendations and committed to implement them until January 2021.