Professor Scicluna as the minister of finance was recently quoted as saying at a press conference held at the Public Contracts Review Board (PCRB) that due to improved communication between the Public Contracts Department and the Review Board, appeals on government tenders are taking less time to be concluded. On paper, this looks like a step in the right direction. It is no secret that Brussels is constantly urging members to make the bidding procedure simpler, with a standard “European Single Procurement Document” based on self-declarations. It may look like a pie in the sky since we all know that the praxis in Malta is that tender conditions are drafted to accommodate the larger firms resulting in enormous bankers’ guarantees mandated upfront even though EU rules talk about the division of contracts into lots to make it easier for smaller firms to bid.
This article will reveal how a particular SME has been regularly denied winning contracts even though it is competitive and technically competent to do so. It goes without saying that the prejudice against newcomers on the market reigns supreme and many SMEs wait eternally in the queue to make it to the coveted list of approved firms. The new legislation proposed at EU level, overhauls the current public procurement rules and for the first time sets common standards on contracts to boost fair competition and ensure best value for money by introducing new award criteria that place more emphasis on environmental considerations, social aspects and innovation. It is hoped that rules will also make it easier for small and medium-sized firms to bid. Karel De Gucht, European Commissioner for Trade, said: “I am a firm believer in making sure trade flows freely and government procurement must be an essential part of open trade markets worldwide. It’s good for business, good for consumers and brings value for money for taxpayers.” In practice one finds that the dearth of transparency afforded to bidders in some government tenders hits SMEs adversely. It is they who suffer most when trying to participate and gain access to the inner club of accredited larger suppliers.
On the stage we welcome the champion of transparency - Chris Cardona, Minister for the Economy, Investment and Small Business. He gallantly expressed his view that “boosting transparency (and) removing unnecessary red tape” is a top government priority. The author recounts particular instances where transgressions in procurement rules occurred and gives specific instances that stressed an SME in its legitimate attempts to earn a place among the winning bidders.
A classical example was Tender No: 4/2013, Survey on Household Finance and Consumption in Malta, which was issued under the auspices of the Central Bank of Malta (CBM). Despite the cheapest bid by an SME having a bid price of €37,000, the tender was awarded to an alternate bidder at a quote of €93,263, nearly three times the amount of the cheapest bidder. In the interim, an appeal was lodged and lost, yet the star fact here is that the winning bidder’s bid price was kept under lock and key by CBM until after the finalisation of the appeal procedure which culminated in a report by the CBM appointed Independent Objections Officer (a retired ex-employee of CBM who is appointed and paid by the bank, details which obscure the perception of independence and impartiality). CBM does not publish the full list of bidders and their prices, neither does it have an independent forum for appeals. Given that the CBM survey tender was awarded to another firm where the wife of high ranking official works and a similar tender issued two years ago was also awarded to the same firm, this exposes a blatant conflict of interest that arises as a matter of fact.
In an article published in It-Torca on 1 December 2013, CBM stated that “at no stage was the official involved in the evaluation process”. While not surprising, however this does not add or remove to the conflict of interest which was, is and continues to be seen to exist. Stating in words that this official was not involved when they are not supported by facts does not add anything to independence and transparency which was seen to be lacking. It is no exaggeration to state that transparency is a concept which has to manifested and seen to be done, so to achieve this any conflict of interest is to be disclosed from the outset.
In the CBM case, it should have so been disclosed when the appellant SME was informed of the rejection, and not afterwards through the press reply issued to rebut accusations in the media by the SME. To rub salt into the wound, the Communication officer chastised the SME for its effrontery in trying to challenge the status quo. Such arrogance can be surmised from lack of transparency towards SMEs which mostly go against the spirit of the law “Small Business Act” promulgated in 2011. There is a feeling of déjà vu when SMEs try to break open the steel cage which in the past was always patronised by the well-connected. In addition, this clearly defies the Central Bank’s chief dictum of awarding tenders to different and new entities, thereby giving new entities a chance and avoiding stagnating quality levels, as expressed by CBM complaints officer to the SME at the appeal meeting.
The example given shows how an SME, having the support of quality people and professional joint-venture partners, has dutifully gone through the proper channels, attended the necessary meetings, offered its submissions, brought in its clarifications, quoted a fair price and substantiated sufficient technical competence tests and is still unaware why it lost .The complainant bidder has also suffered similar drawbacks when applying to other government agencies. In a tender for Internal Audit Services issued by Malta Enterprise and Malta Industrial Parks Limited in 2012, the SME’s bid was €67, 968 but it was awarded to a larger firm for €100,819. Similarly, in the public tender issued for Provision of Financial Audit Services to MITA, there were nine bidders and it was awarded to a larger firm at €68, 875 when the SME in question offered a more competitive sum of €37,325. This bid is currently under appeal.
In a fourth case concerning the provision of verification services on security of national oil stocks issued by MRA, the SME was the cheapest bidder but the tender was mysteriously cancelled. This case has been appealed. It is encouraging to note that an honourable solution proposed by the Malta Council for Economic and Social Development (MCESD ) suggests that government tenders should be awarded to two contractors, with 70% going to the first cheapest and 30% to the second cheapest.
So with examples of so many rejections where can SMEs possibly find redress, if faced with such a tight situation? The million dollar answer is instituting a court case. But logic tells us that SMEs due to their fragile set-up cannot afford the time and expense. Really and truly, why should bidders have to fight such matters in the courts, straining resources and possibly waiting years to obtain redress, which by then would be nothing short of a pyrrhic victory anyway?
Forget the Small Business Act which on paper protects SMEs but in reality is a paper tiger. The EU rules may be perfectly drafted but in practice SMEs cannot afford to invest into increasing their competences and reach through future experience the level demanded by the illusive tender. Malta cannot afford not to nurture the young shoots that are trying to reach higher levels up the slippery nursery slope. Only by enforcing the ‘Think Small First’ slogan and egging it on to be better employed in practice can result in giving the small entities a shot at swinging the club once in a while. On the contrary, this laissez-faire attitude towards procurement procedures (mostly for services) unless properly addressed will pave the way to the demise of more SMEs still labouring under the post 2008 economic crisis.
The writer is a partner in PKF, an audit and business advisory firm
[email protected]