The Corruption Prevention and Combating Bureau (KNAB) considers that amendments to the Procurement Law which were approved by the Committee of the Cabinet of Ministers on 27 October will considerably increase corruption risks in the procurement area in Latvia. As result to such amendments the state could suffer considerable economic damages.
The amendments foresee to abolish the necessity to apply a procurement procedure in cases if a value of goods or services does not exceed 92 755 LVL (approximately 131 980 euro) and in case of public works – 200 000 LVL (approximately 284 575 euro). KNAB considers that in these circumstances the majority of state and municipal procurements will be carried out without comprehensive control, clear assessment criteria and documentation, as well as excluding possibilities of free competition and appeal taken decisions for entrepreneurs.
The amendments submitted by the Ministry of Finance and approved by the Committee of the Cabinet of Ministers foresee that in cases when a state or municipal institution plan to buy goods or services in amount from 1 000 up to 92 755 LVL, it publishes at the Procurement Monitoring Bureau’s webpage an informative announcement on a contract and sets the deadline for submission of tenders. Considering that these amendments do not foresee a procurement procedure in abovementioned cases, therefore an institution is not obliged to establish a procurement commission and, in fact, such procurement can be performed by one person, which clearly does not correspond to the principles of prevention of corruption risks. For such procurement there will be no need to prepare a tender documentation (terms of references), there will be no need to specify criteria for evaluation of tenders. Therefore, it will not be possible to assess whether resources have been used effectively and controlling bodies will not be able to examine activities of officials related to organisation of procurement. Furthermore, the amendments do not stipulate possibilities of entrepreneurs to appeal procurement conditions.
The data published by the Procurement Monitoring Bureau shows that approximately only 2,4% exceeded the procurement value foreseen by the amendments of all procurement contracts concluded in 2007. Thus, we can anticipate that only in rare cases the procurement procedure will be applied and the majority of procurements will be able to carry out without applying any regulations if the amendments enter in force. Uncontrollable freedom of action in spending large amount of budget resources, practically, without any rules raises great concern about the possibility that in this way the interests of certain entrepreneurs could be lobbed, hence limiting possibilities of other entrepreneurs to get to the state resources.
Investigations of the KNAB indicate that even in circumstances of comparatively strict regulation public officials use to accommodate technical specifications of procurement and requirements of terms of reference so that they could give a contract to a particular tenderer in exchange for a bribe. Evidences show that there are cases when an amount of bribe is set as 10% of each procurement contract concluded, as well as cases when between a tenderer and contracting authority forbidden agreements are concluded on distribution of procurement. KNAB regularly receives complaints on possible corruptive behaviour of public officials related to procurement.
Also cases reviewed by the Procurement Monitoring Bureau show that contracting authorities very often violate regulations of the Public Procurement Law and include such requirements which exclude other tenderers or divide procurement in parts in order to decrease the amount of a contract and to avoid from applying the law.
KNAB reminds that because of a value added caused of corruption the state budget could have serious damages as prices would increase but the quality of services, in its turn, not. Corruption causes also severe damages to the environment of economy by excluding or distorting the competition as the rights to provide services to the public sector get not the best, profitable and competitive, but those who has connections with the decision makers. The legitimacy of public decisions is under threat as the situation allows for one to get disproportional benefits at expense of others.
KNAB wants to draw attention to the fact that public procurement is considered as the high corruption risk area all around the world. Therefore, decrease of control can cause significant damages to the state and municipal budgets and not provide savings as it is expected.
KNAB point out that the directive of the European Union does not request to set such a high contract threshold. At the same time, it should be acknowledged that Western European countries can afford to introduce high procurement thresholds as in these countries exist high-quality internal control within institutions and effective decision appeal system.
Taking into account the economic situation of Latvia, halt of prices’ increase and even drop in prices in certain sectors, relatively high level of corruption in procurements, shortcomings in internal control of institutions and lacunas in possibilities to hold liable officials for violations in procurements, KNAB considers that the contract thresholds can be raised only under condition if there is a procedure in place, even simplified, for procurements under the threshold which would include requirements to ensure transparency, free competition and possibilities to appeal terms of procurement.