The audit findings do not allow one conclude that the goods required in the procurements performed by the Ministry of Defence and the National Defence Military Facilities and Procurement Centre (NDMFPC), in the intended amount, have been purchased at the most advantageous price at the moment in all cases. In the audit report, the auditors revealed cases in which, according to the State Audit Office, contracts were concluded with suppliers at the time when identical goods were available at a significantly lower price on the market. The procurement process has not always been fast. Significant shortcomings have also been identified in the identification of the need for protective equipment that is the scope of responsibility of the State Fire and Rescue Service (SFRS).
While continuing the inspections in the sectors, the State Audit Office assessed the process of purchasing personal protective equipment and disinfectants in the defence sector from April 2 to June 9, when the Ministry of Defence and the NDMFPC took over the management of crisis-related reserves. For this purpose, the government allocated 45 million euros to the NDMFPC, but the NDMFPC concluded 29 agreements with businesses for the total amount of 38.9 million euros. By June 30, there were 15.1 million euros or about a third of the available funding paid to the suppliers for the goods delivered.
Non-application of the Public Procurement Law does not release one from the obligation to spend state budget funds economically
Unlike other sectors, the Ministry of Defence had established procurement procedures, which comply with the interinstitutional cooperation algorithm specified in the order of the Cabinet of Ministers of April 2, as well as recommendations of the European Union and competent national institutions for the actions of extreme urgency and emergency in all essential respects. When performing centralised procurement of personal protective equipment and disinfectants, the established procedure has been followed in the defence sector.
From April 17 until the end of the emergency (June 9), the procurement process in the defence sector has taken place in two phases. It was initially assessed whether the supplier would be able to meet the criteria of delivery time, the security of supply, production volume, and submission of the required documents. The price offered by tenderers was evaluated in the second phase. During the inspections, the auditors did not obtain sufficient assurance that the initially established procurement procedure was applicable without any changes throughout the emergency, also in May and June, when the situation in Latvia stabilised and supply of at least some of the required goods increased in the market.
“Unfortunately, the State Audit Office was not convinced during the inspections that all the contracts were concluded with the bidders who had offered the lowest price among the similar ones at the given time. As the situation stabilised, the Ministry of Defence had to react and change its approach by returning to the most economically advantageous offer, taking into account price and quality criteria already in the selection of bidders. The non-application of the Public Procurement Law does not release one from the obligations specified in other laws that regulate the actions of the public sector with budget funds and property,” stressed Auditor General Elita Krūmiņa.
No doubt deviating from the most economically advantageous tender (taking into account price or cost, and quality criteria related to the subject of the procurement contract) could have been permissible in a situation where factors associated with the security of supply were paramount, and there was a limited supply of personal protective equipment and disinfectants on the market. However, the State Audit Office considers that one could not ignore the fact anymore that the range of tenderers, which could offer the required goods, has significantly expanded as the situation stabilised.
For example, when assessing the contracts concluded on 27 May 2020 for the purchase of surgical masks and disposable medical gloves (sterile, non-powdered) in the final stage of the emergency, the auditors did not obtain confidence that they were concluded with a supplier who could offer the best price for the same quantity and quality of goods and equivalent delivery conditions at the moment. Between the selection of bidders for the purchase of surgical masks on May 6 and the conclusion of the contract on May 27, there were other 21 bids submitted, which were not subject to assessment. Similarly, in the procurement of disposable medical gloves (sterile, non-powdered) in the period from the selection of bidders on April 9 to the conclusion of the contract on May 27, there were cooperation offers received from 14 other merchants, who indicated the fact they could supply disposable gloves together with other product categories.
The accelerated procurement process becomes cumbersome, complicated, and difficult to understand
In the procurement process, the Ministry of Defence and the NDMFPC faced problems common to most countries affected by the pandemic, such as problems in assessing the conformity and quality of goods when certified goods were not available on the market with the rapidly growing demand for goods and the terms and conditions dictated by a limited market in the early stages of an emergency. At the same time, local problems came to the fore: the continuing uncertainty over the volume of purchases of personal protective equipment throughout the emergency, which hampered procurement; the application of the procedure set by the Ministry of Defence in a situation when the regulation of the Public Procurement Law was not applied, turning into a complicated to administer and relatively time-consuming procedure and thus creating quandary and confusion for the businesses who submitted tenders.
Following the decision of the Cabinet of Ministers, the Ministry of Defence and the NDMFPC took over the management of the crisis-related national material reserves on April 2. They carried out centralised procurements subsequently as per the quantities of goods specified in the list of priority needs. The Ministry of Defence and the NDMFPC did not assess and determine the needs of other institutions but acted following the information collected and provided by the SFRS. The information submitted to the Ministry of Defence on the priority needs of the institutions changed continuously until the end of the emergency. The types of goods and the volume of purchases were not clearly defined, which generally complicated the planning and implementation of procurement. There were cases when the NDMFPC had to recalculate the total volume of the goods and contact the business even at the contracting stage to make sure that it would be able to provide a higher volume than initially set. The auditors could not trace the validity of changes in the volume of purchased goods in all cases. Therefore, the State Audit Office is still assessing the issue of the planning of material reserves and the establishment of a three-month reserve, wherefore a separate report will be prepared.
The auditors believe that the procurement process introduced by the procedure approved by the Ministry of Defence on 17 April 2020 is substantially similar to the negotiation procedure provided for in the Public Procurement Law, where the contracting authority consults with the suppliers it has chosen itself and negotiates the minimum requirements for the submission of tenders (they are not regulated by law) with one or more of them which usually include several rounds. The qualification of tenderers is selected initially, and then the selection of tenders is carried out under the requirements specified by the contracting authority. The procurement process also maintains the procedures typical of the Public Procurement Law concerning process documentation. For example, the formation of procurement commissions, process documentation, preparation of procurement-specific documentation such as an application, a technical and financial tender description, a tender form, a technical specification, a draft contract, etc.
From the information assessed during the audit, one can conclude that the purchase of personal protective equipment and disinfectants in the Ministry of Defence takes place within the framework of one large and continuous procurement, which has several runs and happens almost simultaneously. Such a process is difficult to administer.
When applying the procedure established by the Ministry of Defence, in parallel with one procurement run, which was already moving towards contracting, the next run for the purchase of the same goods took place, as well as businesses continued to send offers for the same goods. A tenderer who was not included in one procurement run could be included in the next run. The Ministry of Defence had not intended to compare the bids of the tenderers received in each of the procurement runs occurring in parallel (current bids, second selection round), so the finding that the contract was concluded with a tenderer at a higher price than other tenderer offered at the time of concluding the contract could confuse.
As it had been publicly stated that the Public Procurement Law was not applied to speed up the procurement process, it was probably difficult for the businesses that submitted cooperation tenders to imagine that the procurement process was just as complicated and lengthy due to administrative procedures. Uncertainty about the course of the process might have given the impression of dishonesty on the part of the institutions.