GEO

Alleged signs of corruption in New Year’s celebration procurements of Tbilisi City Hall

06 June, 2020

 

In 2019, Tbilisi City Hall spent GEL 6.6 million on New Year's celebration events. GEL 2.2 million was spent without competition, through simplified procurement.

Five public tenders of Tbilservice Group LLC contain alleged signs of corruption. Only one tender out of the mentioned five was competitive. The absence of competition and the tender requirements cast doubt on possible tailoring of tender specifications to the needs of particular suppliers.

IDO SRL, an Italian company, won four tenders valued at GEL 3.3 million without competition. Probably this happened due to the required samples, which were similar to the products of this company, unreasonably stringent qualification requirements and short bidding periods. In 2018, the same company won a public tender of GEL 2.1 million without competition too, and in 2017, it got a simplified procurement contract of € 620,000 again from Tbilisi City Hall.

Another public tender of Tbilservice Group also casts some doubts on possible tailoring of tender requirements to a specific company. In this case, Ben 3 LLC won the tender. Ben 3 is a company, which was registered 11 days before the tender was announced. Without any experience in entrepreneurial activities, the company could win the tender of GEL 477,000.

The amount of money spent on New Year’s celebration also is a problem. In a city where there are severe social and urban problems, we believe, spending of GEL 6.6 million on such events is not reasonable.

Introduction

In the framework of monitoring budget expenditures and public procurement, Transparency International Georgia has studied the budget expenses of Tbilisi City Hall on New Year’s and Christmas celebration events.

In Georgia, a high share of simplified (direct) procurement characterizes public procurements related to New Year’s events. Emergency or an event of state and public importance are usually named as grounds for direct procurement. Although the New Year is always on January 1, municipalities are unable to start preparations for New Year's events on time and refrain from spending budgetary funds in hurried and drastic end-of-year purchases. Together with the lost opportunity to save, direct procurements raise suspicions of corruption. Last year, Transparency International Georgia published a similar study on New Year's celebration expenses.

Public tenders and direct procurements related to New Year's celebration events

Tbilisi City Hall and the municipality-owned Tbilservice Group have spent up to GEL 6.6 million for 2020 New Year’s and Christmas celebration events. According to the information provided by them, the City Hall administration spent GEL 2,652,045 and Tbilservice Group spent GEL 3,415,974. However, according to the electronic procurement system, Tbilservice Group has spent GEL 3.9 million on New Year's celebration events.

Tbilisi City Hall has spent more than GEL 2 million through simplified procurement, which is 77% of its overall New Year's celebration expenses. Tbilservice Group spent GEL 180,000 through simplified procurement (5% of its overall expenses). Both agencies jointly spent 36% of their New Year’s celebration budgets without tenders.

We requested information from the mentioned agencies about New Year’s celebration events, including tenders and simplified public procurement announcement numbers, but the City Hall gave us only the total number of the expenses made through tenders and direct purchases. As for Tbilservice Group, one tender valued at GEL 455,000 (NAT190018326) was missed from the provided information.

Additional information on Tbilisi City Hall tenders and simplified procurement was obtained from the electronic procurement system. The City Hall announced three tenders, which were won by Pegasi Group (GEL 158,645), Stoll (GEL 378,000) and Sound City (GEL 54,500). Pegasi Group and Sound City did not have competitors.

Tbilisi City Hall has signed simplified procurement contracts with 10 companies with an average value of GEL 205,000. The state and public importance of the event was named as a ground for simplified procurement.

GEL 3.4 million was allocated to Tbilservice Group LLC for organizing New Year’s celebration events. Only 5% (GEL 180,000) of this amount was spent through simplified procurement. These contracts were signed with three companies: Night Show Studio (GEL 59,586), Dundee (GEL 110,000) and El Group (GEL 10,827).

Tenders allegedly tailored to the needs of Italian company IDO SRL

Tbilservice Group spent 95% of its New Year’s celebration budget (GEL 3.9 million) through tenders. However, only one company won four tenders of GEL 3.3 million without competition. This was an Italian company IDO SRL, from which the City Hall purchased illumination equipment of GEL 2.2 million and a Christmas tree of GEL 1.1 million. It is noteworthy that in 2018, Tbilisi City Hall also bought the New Year’s illumination equipment from IDO SRL. That time the company won a tender of GEL 2.1 million also without competition. Moreover, in 2017, Tbilservice Group signed a € 620,000 simplified public procurement contract for the purchase of New Year's illumination equipment with IDO SRL too. During the last 3 years, IDO SRL has received approximately GEL 7.3 million from Tbilisi City Hall.

The four tenders won by IDO SRL in 2019 cast doubt on the fact that Tbilservice Group has tailored the tenders to the company’s needs. Several suspicious circumstances were identified in this tenders:

  1. The technical description of the tender valued at GEL 1,250,000 (registration number NAT190017276) included photos that might be fitted to IDO SRL products. This is partly confirmed by the fact that the photo attached to paragraph 25 depicts New Year's illuminations (programmable meteors) set in Piazza Delle Erbe of the Italian city of Verona. These illuminations are shown in the IDO SRL’s advertising video clip.

    Moreover, in the technical description of the tender valued at GEL 467,000 (registration number NAT190020601), the 3D tail given in the photo attached to the paragraph 3 is similar to the IDO SRL’s product.

Photo #1. Sample photo given in the technical description of the tender

Photo #2. Photo of IDO SRL’s product posted on Facebook in 2018

  1. The bidders’ experience requirements in all four tenders won by IDO SRL were unreasonably strict. In three tenders there was required that a bidder should have had the experience of supplying Georgia and/or the EU member states with New Year’s illumination equipment of at least GEL 3 million since January 3, 2016. Moreover, each tender should have been at least GEL 1.5 million of value. Such stringent qualification requirements may have played a role in restricting competition, especially for Georgian companies.
  2. Tenders (for the purchases of a Christmas tree on August 21, of illumination equipment on August 30 and September 18) were announced quite early. Early announcement of tenders is welcoming, but bidders had a maximum of 12 days to apply. Giving only 12 days for the supply of quite expensive and specific products might become one of the restrictive factors for competition.

Overall, the samples allegedly tailored to IDO SRL products, unreasonably strict qualification requirements and short bidding periods resulted in the fact that, like in the past 2 years, only IDO SRL participated in all four tenders and won them without competition. In three tenders, the company bid the exact price that was the estimated cost of the purchase, thus no savings were made. The only case where the company offered GEL 11,000 less price (GEL 1,089,000) than the initial price, was the tender announced for a Christmas tree purchase. Therefore, only GEL 11,000 was saved in the tenders of GEL 3.3 million.

Tenders allegedly tailored to the needs of Ben 3 LLC

The fifth New Years’ celebration tender of Tbilservice Group also raised questions regarding the tailoring of tender requirements to Ben 3 LLC, which ultimately won the tender.

Ben 3 LLC was established on October 11, 2019. Tbilservice Group announced the tender of GEL 477,000 (NAT190020197) for the purchase of illumination equipment and light bulbs on October 22. Tbilservice Group did not set minimum experience requirements for bidders and as a result, Ben 3, a company established 11 days before, was allowed to participate in such a large tender. This was a strange decision made by Tbilservice Group, especially in light of the tenders won by IDO SRL, where bidders were required to have experience of supplying similar products of GEL 3 million for the last 4 years.

Together with Ben 3, two other companies participated in this tender. Nebi LLC bid the lowest price but it was disqualified due to alleged flaws in technical documentation. According to the minutes of the Tbilservice Group’s Tender Commission meeting, Nebi did not provide information about the exact model. Ben 3 offered the next lowest price – GEL 472,980 and it won the tender. This was the first public tender won by Ben 3 LLC while it had no prior experience in delivering goods or services.

Recommendations

  • We call on the Anti-Corruption Agency of State Security Service and the Prosecutor's Office of Georgia to study New Year's procurements of Tbilservice Group LLC and to investigate alleged facts of corruption;
  • We call on the State Procurement Agency to study the above-mentioned procurements and, in accordance with Article 159 (61) of the Code of Administrative Offenses of Georgia, to impose a fine on the members of the tender commissions for the improper formulation of tender documentation;
  • Procuring goods and services through simplified procedure for the New Year's celebration should be limited as much as possible, since it is freely possible to plan tenders earlier to make sure that simplified procurement will not become an urgent need. The events of high state and public importance do not necessarily imply that a simplified procurement should be used;
  • Procurers should set out the tender terms and conditions in such a way as to minimize the risks of corruption. Providing very specific details of requested goods and services and unreasonably high or low qualification requirements substantially increase the risk of corruption;
  • The State Procurement Agency should have more stringent approach towards approving simplified procurements for New Year celebration events;
  • In light of stark social and urban problems existing in the capital, the city authorities must refrain from spending large amounts of money on New Year's celebration. These resources should be directed to urgent needs.
economics