GEO

Olympic procurement rife with inexperienced companies and tasks not complete within deadlines

05 June, 2015

 

In July 2015, Georgia will host the European Youth Olympic Festival. TI Georgia  studied the large state procurements1 for the festival.  Tbilisi City Hall in 2011 specifically created an Organising committee responsible for the festival; it is this Committee that has conducted the majority of procurements. In total, the Committee has concluded more than 700 procurement contracts. In addition, the state-owned Sportmshenservice LLC was responsible for the procurement of design and construction services for sports complexes valued at GEL 39.4 million. At the same time, in April 2015, the Cartu Foundation allocated GEL 10 million to the City Hall for infrastructure investments for the Olympic festival.

Several problems and questionable circumstances were identified by the study. Specifically:

  • The majority of state procurements for the organization of the Olympic festival were made through simplified procurements, not through competitive tenders which would have saved funds for the State 2. Georgia’s hosting of this festival was known as early as the end of 2010. As such, there was plenty of time to conduct competitive tender processes; it is unclear why this was not done.
  • With better planning and procurements through competitive tenders, it may not have become necessary to source additional funds. Thus, Cartu Foundation’s allocation of an additional GEL 10 million for the Olympic festival projects  might not even have been necessary.
  • Many of the companies who received large contracts with simplified processes (GEL 50 000 and over) had not taken part in state procurements before. It is uncertain by what criteria these particular companies were selected. Concluding large contracts with companies that are not experienced in state procurements is somewhat risky. In one case, a large contract was awarded to a company which had been registered approximately two weeks before the conclusion of the contract, although this contract was soon abolished. The Organizing Committee of the Olympic Festival must explain based on what criteria they selected inexperienced companies and publicize the documents that reflect the process of selection, if such documents exist.
  • In the case of some procurements made for the festival, deadlines for delivery of goods/services were extended several times. As a result, it is uncertain whether it will be possible to complete several facilities before the start of the festival. Procurement process only began in 2014. As already noted, it has been known for Georgia that the festival will be held in the country since the end of 2010. In the future, procurements necessary for the organization of events of such importance should be made in a more timely manner.

I. Procurements by the Organizing Committee

In 2011, the government of Tbilisi established Non-Entrepreneurial Legal Entity Organizing Committee of the European Youth Olympic Festival “Tbilisi 2015” which is responsible for the organization of the festival. The Organizing Committee has procured goods and services of about GEL 62 million.

Since December 2013, the Organizing Committee has made procurements of about GEL 14 million by means of tenders. As a result of decrease in prices during the tenders, the agency managed to save more than GEL 4 million.

At the same time, from September 2013 to April 2015, the Committee concluded simplified procurement contracts worth GEL 31.1 million, Euro 6.1 million, and USD 1.4 million, which constitutes about 75% of all the procurements made by the Committee. In the case of simplified procurements, the public agency concludes a contract with a desirable provider without announcing a tender. Most procurements were made with the government’s permission, and most sums were spent from the budget of the Tbilisi City Hall.

It is unclear on the basis of what criteria the Organizing Committee selected provided through the simplified process. Still more questions arise from the cases where large contracts were concluded with newly founded companies or those inexperienced in state procurements. The Committee concluded direct contracts with several companies that had not taken part in state procurements before. We present the simplified procurements worth more than GEL 50,000 made by the Organizing Committee of the Olympic Festival,and those where the providers are less experienced in state procurements:

  • GMC LLC was registered on March 24, 2015. The director and 100% owner of the company is Giorgi Zariashvili. No other company is registered on Zariashvili’s name. On April 6, 2015, the Organizing Committee concluded a contract with a value of GEL 597,789 with this company for the installment of ventilation and air-conditioning systems. On April 15, 2015, this contract was terminated by mutual agreement. As the company had only been created two weeks before, naturally, it had not been awarded any state procurement contracts before this contract. The company does not have a website, and information about its activities cannot be found in online sources. Interestingly, the Organizing Committee has not procured ventilation and air-condition systems from another source since then.
  • G-Service LLC was registered on October 6, 2014. The director and owner of a 13% stake of the company is Tamar Rekhviashvili. The remaining stakes are owned by Besik Butskhrikidze (67%) and Grigol Beltadze (20%). On April 24, 2015, the Organizing Committee of the Olympic Festival and G-Service concluded a contract worth GEL 270,000 for the provision of furniture, and on May 5, they concluded an additional contract for similar goods with a value of USD 167,979. The company had not previously been awarded any state contracts, although it had participated in several tenders.
  • Fashion Style LLC was founded on April 12, 2013. The director and 100% owner of the company is Magdana Jokhadze. On April 29, 2015, the Organizing Committee of the Olympic Festival concluded a simplified procurement contract worth GEL 493,668 to hold concerts related to the bringing of the Olympic fire to Georgia. This is the first state procurement for this company. Like other companies, the company’s website and information about its activities cannot be found on the Web. The website of the State Procurement Agency does not contain documents on price inquiry or any selection processes which would justify the selection of the inexperienced company.
  • General Business LLC was registered on September 20, 2013. The director of the company is Erekle Kakhniashvili, and its owners are Giorgi Katsitadze (50%) and Nugzar Peikrishvili (50%). For the construction works of the “Mokhalise” hotel complex on the area of the educational experimental land plot of Digomi, on June 1, 2014, the Organizing Committee of the Olympic Festival concluded a simplified procurement contract worth GEL 214,247 with this company. Like many other successful companies, General Business LLC had not taken part in state procurements before. The company does not have a website, and information about its activities cannot be found online. The website of the State Procurement Agency does not contain documents on price inquiry or any selection processes which would justify the selection of the inexperienced company.
  • Index Georgia LLC was registered on April 3, 2012. The director of the company and 100% owner is Aleksandre Makharadze. The company concluded four contracts worth, in total, GEL 116,804 with the Organizing Committee of the Olympic Festival. The company had not taken part in state procurements before. The website of the State Procurement Agency does not contain documents on price inquiry or any selection processes which would substantiate the selection of the inexperienced company.
  • Sterling Advertising LLC was registered on March 15, 2011. The director of the company is Zviad Maisashvili is also a 75% stakeholder. The remaining 25% is owned by Darejan Chachibaia. On December 16, 2014, the company concluded a contract with a value of USD 43,500 with the Organizing Committee of the Olympic Festival for placing TV advertisements. The company had not taken part in state procurements before. The company’s website or information about its activities cannot be found on the Web. The website of the State Procurement Agency does not contain documents on price inquiry or any selection processes which would substantiate the selection of the inexperienced company.
  • Villa Art LLC was registered on May 24, 2006. The director of the company and 100% owner is Ramaz Jashiashvili. On July 7, 2014, the Organizing Committee of the Olympic Festival concluded a simplified procurement contract with a value of GEL 6.4 million with Villa Art LLC for the construction of a hotel on the area of the educational experimental land plot of Digomi. Like the other companies, Villa Art LLC had not taken part in state procurements before. The company does not have a website, and information about its activities cannot be found on the Web. The website of the State Procurement Agency does not contain documents on price inquiry or any selection processes which would substantiate the selection of the inexperienced company.

We believe that the Organizing Committee of the Olympic Festival should explain why it became necessary to make so many simplified procurements and by what criteria it selected companies without previous experience in state procurements.

II.  Projects of Sportmshenservice LLC

The state-owned Sportmshenservice LLC is constructing a water sports complex and handball complex for the Olympic festival of 2015. These constructions were due to be completed in February and March 2015, although their completion deadlines were extended several times, which gives rise to questions about whether it will be possible to complete the construction of these facilities before the start of the Olympic festival. It should be noted that, in most cases, the website of Sportmshenservice LLC contains information about the procedures of selection of companies, which is a welcome fact. In all the cases, the website indicates that the price was the main criterion of selection.  

1. The water sports complex

Sportmshenservice LLC is constructing a water sports complex on the area adjacent to the US Embassy. Arsi Studio LLC designed the complex, having been awarded a GEL 95,000 contract for the purpose on January 14, 2014. The service was supposed to be delivered in three stages, in 105 calendar days in total, although it was delayed by 35 days.

After the design of the complex was approved, L Georgia LLC was selected for its construction. According to the organizers, L Georgia LLC submitted the lowest bid for the services,   

On June 19, 2014, Sportmshenservice LLC concluded a simplified procurement contract with a value of GEL 8.9 million with L Georgia LLC for the construction of the swimming pool. The deadline for delivery of the work was set for February 28, 2015. In January 2015, an agreement was concluded with the company according to which the deadline was extended to April 30, 2015. And on April 22, 2015, due to a lack of communication systems in the facility, the deadline was extended to June 15, 2015.

On September 26, 2014, an additional contract with a value of GEL 4.8 million was concluded with L Georgia for the works of completion of the swimming pool. In this case, the website contains no information about selection procedures. In this contract, the deadline for delivery was set for April 30, 2015. And in April, the deadline was extended to June 15, 2015.

2. The new sports palace

According to news reports, the construction of the new sports palace near Building 10 of Tbilisi State University, where handball matches of the Olympic festival were supposed to be held, may not be completed on time. On May 18, the head of the Organizing Committee stated on Rustavi 2 TV station that, as it was uncertain whether it would be possible to complete the facility, it had been decided not to hold the competitions in the new sports palace. Procurements for the construction of this facility were also made by the state-owned company Sportmshenservice LLC.  

From projects submitted by several providers, the company selected the design by Linecube LLC, and, on May 7, 2014, concluded a simplified procurement contract worth GEL 95,000 with the company for the purchase of design/price estimation services. According to the contract, the project was due to be delivered by August 20. According to agreements concluded between the company and Sportmshenservice LLC, the deadline for delivery was extended by 34 days in total, although the final acceptance-delivery act is yet to be uploaded, due to which it is impossible to ascertain when the project was delivered to the buyer.   

After the design had been approved, Electro Montaj Service LLC, which, according to the organizers, had submitted the lowest bid, was selected for its construction. Sportmshenservice concluded three simplified procurement contracts with this company with a total value of GEL 25.5 million.

The first contract with a value of GEL 5.5 was concluded on September 26, 2014. The deadline for fulfillment of the contract was set for March 15, 2015, but, in an agreement later uploaded to the website, the deadline for delivery of the work was extended to April 30, 2015. At the same time, according to the first contract, the company was to receive 20% of the contract value after the submission of an independent expert’s report on full fulfillment of the works. Under the agreement according to which the deadline was extended, this figure was decreased to 5%.

On December 31, 2014, a contract with a value of GEL 11.9 was concluded with Electro Montaj Service for the works of completion and facing of the same facility. The deadline for completion of the works was set for May 31. According to an agreement concluded in May 2015, the deadline for delivery was extended to July 15 — 11 days before the start of the festival.

On April 16, 2015, Sportmshenservice LLC and Electro Montaj Service LLC concluded a third contract with a value of Euro 894,590 for the purchase and installment of equipment/supplies necessary for the sports complexes (both the handball complex and the water polo complex which is under construction in Digomi). The deadline for delivery of the services is June 20. The deadline for delivery of one of the items envisaged in it, the so-called “video screen” for the water sports complex, is July 20, 2015, or six days before the start of the Olympic festival.    

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1 According to the Georgian legislation, state procurements may mainly be made in three different forms, specifically: (1) an electronic tender that is announced in the case of procurement with a value of GEL 200,000 or more; (2) a simplified electronic tender that is announced in the case of procurement with a value below GEL 200,000; (3) simplified procurement that a public institution resorts to in the case of procurement with a value below GEL 5,000 or when the delivery of goods, service, or work is the exclusive right of only one person and no expedient alternative exists.   

2 During 2014, GEL 241,132,563 was saved by means of the Unified Electronic System (through tenders and competitions), which amounts to about 12% of the total estimated value.  
Author: TI Georgia