Public Procurement in Kakheti Municipalities: Systemic Trends - საერთაშორისო გამჭვირვალობა - საქართველო

Public Procurement in Kakheti Municipalities: Systemic Trends

06 October, 2020


Transparency International Georgia studied the tenders and simplified procurements carried out in eight municipalities of Kakheti in 2013-2020 which demonstrated general identifying features of public procurement practices:

  • It is often the case that the tenders announced by municipalities are won by companies which have no experience working on similar projects;
  • Newly established and inexperienced companies often win tenders without competition and receive simplified procurement contracts whose value exceeds multiple times the GEL 5,000 threshold established by the law beyond which it is recommended that the buyer announces an electronic tender;
  • In some cases, connections with incumbent or former public officials and signs of corrupt deals can be identified.

An absolute majority of tenders and simplified procurements in this study are linked to infrastructural projects:

  • Construction and renovation work;
  • Paving roads;
  • Installing water and drainage systems;
  • Outdoor lighting.

The procuring agencies mentioned in this document are mainly the following:

  • City Halls of municipalities;
  • Roads Department of Georgia;
  • Municipal Development Fund.

The study has demonstrated the topicality of the “revolving door”[1] problem in the municipalities of Kakheti: many former officials, soon after leaving office, have founded companies and started winning tenders and receiving simplified procurement contracts in the same municipalities in which they held office.

The study also looks at enterprises and physical persons whose direct connections with the incumbent or former public officials are not obvious but which have the following methods in common when they participate in procurement throughout the eight municipalities:

  • The companies start being awarded contracts soon after being established or are passive for years after being established and obtain procurement contracts without accumulating any experience.
  • The majority of companies start participating in public procurement directly by receiving simplified procurement contracts.
  • The procuring agencies usually state “pressing need” as the reason justifying simplified procurement, however, they are unable to provide sufficiently strong substantiation for such circumstances. It is often the case that the substantiation texts are identical to each other.

Identified Trends and Main Findings

The study examines[2] the activities of 51 limited liability companies (LLCs) and seven individual entrepreneurs who won tenders and were awarded simplified procurement contracts worth over GEL 167m between 2013 and 2020.

  • Overall, in case of 17 companies and individual entrepreneurs, direct or indirect connections to incumbent or former public officials were identified;
  • Out of 52 LLCs, 32 started receiving simplified procurement contracts and winning non-competitive tenders soon after their establishment, in some cases – within several days;
  • In some cases, after a company won a tender by offering the lowest bid, the value of the procurement would increase after signing the contract;
  • The company formerly owned by Besik Kochishvili, deputy chairperson of the Georgian Dream – Democratic Georgia faction in Telavi City Council, received GEL 1.7m from the budget in 2015-2019;
  • Two companies of Zurab Svimonishvili, former deputy head of administration of Telavi, – Building, LLC and New Building LLC – won tenders and were awarded simplified procurement contracts worth GEL 1.2m in 2013-2020;
  • The company owned by a business partner of Sagarejo City Council Chairperson Otar Chalatashvili continues to receive simplified procurement contracts from Sagarejo Municipality, and its income in 2018-2020 exceeded GEL 1.7m;
  • A company owned by the father-in-law of former Deputy Mayor of Gurjaani Nikoloz Getiashvili received income of GEL 12.8m in 2015-2020. This amount includes GEL 1m received by the company through simplified procurements from Gurjaani Municipality alone;
  • A company established by Tornike Shiolashvili, former director of Tbilservice Group, LLC, one month after he testified against former Tbilisi Mayor Gigi Ugulava in court, won tenders and received simplified procurement contracts worth GEL 72m in 2014-2020;
  • Companies linked to Zurab Shavbalakhashvili, former head of the Monitoring Service of the City Hall of Kvareli Municipality, won tenders and received simplified procurements worth over GEL 1m from Kvareli Municipality;
  • A company linked to Mariana Gelashvili, deputy chairperson of the Georgian Dream – Conservatives faction in Lagodekhi City Council, was awarded two simplified procurement contracts one week after being established;
  • A company owned by a brother of Valeri Khutsishvili, acting [head] of the Monitoring Service of Lagodekhi City Hall, was awarded simplified procurement contracts worth GEL 300,000 by Lagodekhi Municipality;
  • A company founded by Nodar Bakashvili, head of the secondary structural unit under Sighnaghi City Hall – Department of Spatial Arrangement, Architecture and Monument Protection, was awarded simplified procurement contracts worth GEL 890,000 by Sighnaghi Municipality alone;
  • Incumbent Deputy Mayor of Akhmeta Vano Naskidashvili’s friend – individual entrepreneur Beka Oniashvili won tenders and was awarded simplified procurement contracts worth GEL 1.8m in 2015-2020 by Akhmeta Municipality alone;
  • A company owned by a brother of the wife of Arsen Bughridze, chairperson of the Finance and Budget Commission of Akhmeta Municipality Council, won tenders and was awarded simplified procurement contracts worth GEL 1.4m by Akhmeta and Telavi Municipalities;
  • A company established in 2018 by Emzar Paksadze, head of the human resources department of the Public Broadcaster Adjara TV and Radio, was awarded a simplified procurement contract worth GEL 700,000 and won a tender worth GEL 232,753 in Akhmeta Municipality in 2019.

As a result, with regard to the procurement practices in eight municipalities of Kakheti in the past eight years, a substantiated suspicion arises that we are dealing with a systemic problem of corruption.

Conclusion and Recommendations

The facts provided in this study demonstrate that public procurement in all eight municipalities of Kakheti are characterised by uniform practices. It happens frequently that tenders are won by and simplified procurement contracts are awarded to the legal and physical entities linked to incumbent and former public officials. Also, companies with no experience conducting similar work prior to receiving public procurement contracts.

A significant part of the budget resources spent by the Kakheti municipalities on infrastructural projects has been channelled precisely to this kind of companies, which points to the shortcomings and corruption risks in the public procurement process.

Transparency International Georgia calls on the Anti-Corruption Agency under the State Security Service and the General Prosecutor’s Office to investigate the facts cited in this study, where there are direct signs of alleged corruption and of creating favourable conditions for [specific] companies.

Furthermore, we call on the municipalities to act in line with the best practices in public procurement, improve procurement methods, consider the State Procurement Agency’s recommendations in each procurement process and make public the information about the sub-contractors participating in tender and simplified procurement process.

Each simplified procurement must be accompanied by the results of a market research. The procuring agencies must define more clearly the criteria based on which they would select a specific company or a physical person.

[2] The study does not cover Road Construction and Renovation Company Serpantini, LLC which belongs to the mother of Giorgi Zedelashvili, former first deputy secretary of the State Security and Crisis Management Council. Transparency International Georgia wrote about it in the article published on 17 February 2020. The total value of tenders won by and simplified procurement contracts awarded to this company since 2013 has amounted to more than GEL 120m.