The capping set on the price of catering in a contract issued by Saint Vincent De Paul residence was inflated to compensate for ‘free’ investment at the elderly care home, the National Audit Office has opined.

The NAO has slammed a €274 million contract, awarded in 2017 to a consortium formed between James Caterers Ltd and Malta Healthcare Company, a subsidiary of db Group.

The original call was for the provision of catering and the construction of a new kitchen but the bidders were asked to provide additional investment at no cost. The JCL-HMC consortium proposed to invest some €14 million in the construction of four new blocks with a bed capacity of over 500 beds.

But the NAO has questioned whether the contract “secured value for money” for the government and has questioned the inclusion of an investment ‘at no cost’ to SVP, saying that no such thing exists.

In a report tabled in Parliament this week, the NAO said it was unable to determine how the additional investment component originated, notwithstanding that this was an innovative requirement of the call for tenders for comprehensive services.

“The concept of an additional investment at no cost to the contracting authority, as applied in this case, is fallacious, for in a transaction of significant value with commercial interests, nothing is ever secured for free,” the NAO said.

“In this case, bidders could recover the additional investment by factoring this cost into the pricing for the provision of meals or through other related agreements. In reality, the SVP would simply be transferring part of its recurrent cost incurred in the procurement of the catering services to fund another expense, possibly of a capital nature. This Office deemed this more of a balancing act, where the bidder would recover this outlay through that charged on the other deliverables, rather than provide an additional investment at no cost.”

The NAO said it “is of the opinion that the €12.72 capping for the daily price for meals per person inflated the cost of catering to compensate for the other elements of the tender, namely, the construction of the kitchen and the additional investment at ‘no cost’ to the SVP.”

It said that, while the additional investment was intended to obtain increased benefit to Government, it was unable to determine with certainty how this component had originated.

 

‘Prior understanding’

Another issue flagged by the NAO was a possible “prior understanding” between one of the members of the consortium – MHC – and the care home management. MHC had already been granted a tender to provide meals for the care home after the inhouse kitchen was closed down for sanitary reasons.

“Of note to the NAO was the evidence reviewed of meetings held by the SVP prior to the issue of the call for tenders. During these meetings, the MHC expressed interest in a tender that was yet to be issued – one that the contractor would eventually secure – and the SVP highlighted the possibility of the refurbishment of the kitchen being assigned to the contractor in exchange for a ten-year catering contract. This was ultimately reflected in the call for tenders issued by the SVP. It is in this context that the NAO’s reservations regarding the possible prior understanding between the SVP and the MHC emerge,” the national auditor said.

 

Value for money?

The NAO also highlighted the fact that, during the negotiations, the price the government agreed to pay per occupied bed at the blocks built and run by the consortium were substantially higher than what it paid other private contractors.

“No analysis as to what Government was charged for highly dependent residents in other care homes was undertaken,” it said.

In November 2020, by the handover of the blocks, the rate charged by the consortium was revised to €118.44, as against the average of €65.13 charged under the Buying of Beds Scheme.

“This difference raises doubt whether value for money was secured.”

 

No political authorisation

The NAO also pointed to the lack of political authorisation for the massive contract.

“The agreement for the management of the additional blocks was not brought to the attention of Cabinet despite its materiality and the project’s national importance.”

It concluded that no political authorisation to enter into a negotiated procedure with the Consortium was requested from and provided by the Parliamentary Secretaries involved.

It said that “considering the extent of the project, its materiality, its significance due to the increase in capacity of existing facilities, and that negotiations had been underway for several months, it is incredulous how this project did not draw the attention of the Parliamentary Secretaries responsible for the SVP.”

Even if the project was not referred to the Parliamentary Secretaries for their authorisation, their failure to enquire as to the regularity of this procurement is in clear breach of their duty arising from the political post held, it said.

When discussions first started, Michael Farrugia was the minister responsible for the elderly. By the time the contract was awarded, he had been replaced by Michael Falzon. Both have passed the buck when asked who will be shouldering the political responsibility, although Falzon assured journalists this week that the NAO report would be “scrutinised internally and any necessary action will be taken.”