Trends in procurements by the new administration of Tbilisi City Hall
2013 data shows that the Tbilisi City Hall is one of the largest procurers among the state agencies. Individual procurements carried out by this agency have frequently attracted media and civil society attention. For this very reason we have decided to probe into the capital's procurements more thoroughly. It turned out that the City Hall has recently issued a considerable number of tenders, the terms of which provide for the advance payments of a portion of the tender value. These advance payments are unusually high, reaching sometimes 70%, 95% and even 100% of a tender value.
Transparency International Georgia has researched City Hall procurements carried out between August 2014 through 12 December 2014. Between August and mid-December 2014, the City Hall announced a total of 226 tenders: in 53 cases the tender failed due to no bids being received, 14 tenders resulted in contracts not being awarded, and 12 tender processes were terminated.
High Advance Payments
In 67 (46%) out of 147 tenders, tender conditions allowed to make advance payments worth 50% or more of a contract value. More specifically, in 11 cases tender conditions provided for making an advance payment worth 100% of total value of services, in 15 cases - 95%, in 5 cases - 70%, and in 36 cases advance payments could be made not more than 50% of a tender value. In comparison, in 2013 of the 487 contracts worth over GEL 5000, 61 allowed for advance payments. The contracts also did not allow for such high advances: in 4 cases up to of 15% of the value of the whole contract, in 32 cases - 20%, 8 cases - 30%, 2 cases - 40%, 7 cases - 50%, and 4 cases - 70%. In 4 cases contracts provided for advance payments, yet without setting upper caps.
Over the period from August to 12 December 2014, majority of tenders allowing advance payments of 50% or over were held to procure services for planting trees, road repairs, arrangement of landscaping territorial works, and engineering works. It is notable that:
In 2011-2013 the City Hall did not arrange any advance payments on any tender for procuring trees, whereas in 2014, advance payments worth 100% of a tender value are provided for to this in several cases.
Advance payments in tenders for road repair works announced in 2012-2013 were allowed in the range of 10%-30% of a tender value on average. In 2013, only one tender allowed for an advance payment, up to 40% of tender value. From August 2014 through 12 December 2014, 15 tenders announced for road repair works provided for advance payments up to 50% of a tender value, in 5 cases - 95%, and 1 tender allowed to make the advance payment of 100% of the contract value.
In 2012, no tenders for procuring engineering works allowed for advance payments. In 2013, contracts to this end were signed on a total of 51 tenders, from which making advance payments was usually allowed within the range of 30%, while in 5 cases tender conditions provided for 50% worth of advance payments. From August to 12 December 2014, 4 tenders allowed for advance payments worth 100%, and in 2 cases - worth 50%.
As for the arrangement of landscaping territorial works, advance payments in tenders announced to this end in 2012 were given up to 30%, there were no such tenders in 2013, and from August until 12 December 2014, tender conditions of 3 tenders announced provided for advance payments up to 95% of the contract value.
Transparency International Georgia inquired into reasons behind such considerable change in the City Hall's procurement policy. The Procurement Service of the Tbilisi City Hall has explained to us that service-providers have expressed desire to widely apply advance payments, because many of them may not have sufficient resources for providing services requested by the City Hall. The Procurement Service also claimed that the Tbilisi City Hall loses nothing by giving advance payments, because a precondition of advance payment is a banker's guarantee, and in case of failure to deliver on obligations, the bank returns amounts to the Tbilisi City Hall immediately upon the first request.
Obviously, the law on procurements allows advance payments and a banker's guarantee makes it possible to return amounts to the City Hall in cases of events of default immediately upon its demand. However, the reason behind executing contracts with companies that have insufficient resources to deliver on the works is unclear.
Out of the 67 tenders between August 2014 until 12 December 2014, which allowed for advance payments worth 50% or more of a tender value, 10 tenders were won by companies founded after 2012. The following cases, in which companies founded after the announcement of a tender or shortly prior to expiration of submission of proposals had won, deserve special attention:
A tender for road repair works announced on 8 October 2014 (SPA140023631), with deadline for submitting proposals being 31 October 2014, was won by "Enco" LLC founded on 16 October 2014. "New Castle Construction" LLC, founded on 13 August 2014 was participating in the tender along with "Enco", and was disqualified due to technical documentation. The value of the procurement amounted to 459 164 GEL. Tender conditions allow advance payments worth 95% of the contract price. The company is owned by Tornike Shiolashvili (50%) and Nugzar Motskobili (50%). In the past, Tornike Shiolashvili was the Director of "Tbilservice Group" LLC (2011-2013) and served as the Head of the Tbilisi City Hall's Cleaning Service (2013).
"New Castle Construction" LLC, founded on 13 August 2014, won a tender for road repair works announced on 3 October 2014 (SPA140023290). The contract value of the procurement amounted to 605 555 GEL. "New Castle Construction" LLC was the sole company participating in the tender. Shareholders of the company are Malkhaz Gelashvili (25%), Lia Odishvili (50%) and Irakli Bliadze (25%). Tender conditions allow for advance payments worth 95% of the contract price.
A tender for road repair works announced on 5 September 2014 (SPA140020929), with deadline for submitting proposals being September 29, was won by "Gzamsheni 4" LLC. The contract value amounted to 477 905 GEL. Tender conditions allowed advance payments worth 50% of the contract price. "Gzamsheni 4" LLC is founded in 1997, but its 99.2% shareholder "Gza-2014" LLC is founded on 22 August 2014. "Gza-2014" was initially owned by Nazibrola Alasania, and currently is in the ownership of Iranian company "Roham Sperlus Co" LLC (id./num. 432300).
A tender for the reinforced concrete works announced on 3 October 2014 (SPA140023292), with submission deadline of October 27, was won by company founded on 8 July 2014 - "Nick's Branch in Georgia" LLC. Contract value of procurement amounted to 649 000 GEL. Tender conditions allowed advance payments worth 50% of the contract price. The company's Director is Giorgi Gochiashvili, and the founder - "Nika" LLC incorporated in the Russian Federation. In addition, Giorgi Gochiashvili is the Director and shareholder of other four companies: "G. Ana 2009" LLC, "Ecomsheni" LLC, "Mshenservicecentri" LLC, and "Iberiavesti" LLC.
Comments and recommendations
Although making advance payments does not breach the law formally, Transparency International Georgia finds the City Hall's arguments about the new practice of giving advance payments during procurements unsatisfactory. This practice raises doubts as to proper disposal of state funds and planning of appropriate actions by the City Hall's Service aimed at receiving quality services.
We believe more clarity is required in setting an upper cap of advance payments during the procurements. Further, it is desirable that clearer criteria for granting upper caps (50% and over) of advance payments in announced tenders exist, in order to avoid an impression that advance payments are applied to give advantage to specific companies lacking due experience.