ANNUAL REPORTON MONITORING THE IMPLEMENTATION OF PUBLIC PROCUREMENTS IN THE REPUBLIC OF MACEDONIA

2009

Skopje, February 2010

CIP - Katalogizacija vo publikacija Nacionalna i univerzitetska biblioteka “Sv. Kliment Ohridski”, Skopje

35.073.53:005.504.1(497.7) “2009”

GODI[EN izve{taj od monitoringot na javnite nabavki vo RepublikaMakedonija - 2009/ (avtori Sabina Faki} ... (i dr.) ; urednici Fani Karanfilovska Panovska, Kire Milovski), - Skopje: Fondacija Institut otvoreno op{testvo-Makedonija, .- 26, 26 str. ; 22sm

Nasl. str. na prepe~ateniot tekst: Annuial report on the implementation of public procurements in the Republic of Macedonia - 2009Obata teksta me|usobno pe~ateni vo sprotivni nasoki.- Tekst na mak.i angl. jazik

ISBN 978-608-218-051-91. Faki}, Sabina (avtor)a) Javni nabavki - Monitoring - Makedonija-2009COBISS.MK-ID 81573642

Annual report on monitoring the implementation of public procurements in the Republic of Macedonia - 2009

Publisher:Foundation Open Society Institute - Macedonia

For the publisher: Vladimir Milcin, Executive Director

Prepared by:Center for Civil Communications (CCC) – Skopje:Sabina Fakic, German Filkov, Darko Janevski, Vanja Mihajlova, Igor Mojanoski and Elena Ristevska

Editors:Fani Karanfilova PanovskaKire Milovski

Translation in to English and Proof reading:Abacus

Design & Layout:Brigada design

Print: Propoint

BPP | Bureau of Public ProcurementsSAO | State Audit OfficeSCPPA | State Commission on Public Procurement AppealsCA | contracting authoritiesEO | economic operatorsEPPS | Electronic Public Procurement SystemPPL | Public Procurement LawRM | Republic of MacedoniaCCC | Center for Civil Communications

SUMMARY

10 Key remarks on public procurement procedures in Macedonia

Key recommendations aimed to improve the public procurement process

INTRODUCTION

SPECIFIC FINDINGS

DETAILED RECOMMENDATIONS AIMED TO IMPROVE THE PUBLIC PROCUREMENT SYSTEM

CONTENTS ABBREVIATIONS:

4

5

6

8

10

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4 SUMMARY

SUMMARY

The Center for Civil Communications from Skopje, in the period from Novem-ber 2008 to November 2009 analysed the implementation of public procurements in the Republic of Macedonia as regulated under the Public Procurement Law. The analysis aimed to assess the implementa-tion of public procurements in the light of the new Public Procurement Law and the application of basic principles of transpar-ency, competitiveness, equal treatment of economic operators, non-discrimination, legal proceeding, cost-effectiveness, ef-ficiency, effectiveness and cost-effective public spending, the commitment to obtain the best bid under most favourable terms and conditions, as well as accountability for the public procurements implemented.

The present analysis of the public procurement process in the Republic of Macedonia was performed based on the monitoring of selected sample of proce-dures, which was comprised of a total of

160 procedures announced by central level contracting authorities (equally divided into 4 quarters) whose call for bids were published in the “Official Gazette of the Republic of Macedonia” in the period No-vember 2008 - October 2009. Monitoring activities start with the publication of calls for bids, followed by attendance on public opening of bids and data collection on the procedure course, and used in-depth inter-views and structured questionnaires sub-mitted to the contracting authorities and the economic operators, applications for free access to public information, analysis of data obtained from reports and publi-cations of the Bureau of Public Procure-ments and the State Commission on Pub-lic Procurement Appeals, as well as the in-depth interviews carried out with other stakeholders.

The present report on the monitoring of public procurement process was devel-oped in cooperation with and the financial

support from the Foundation Open Soci-ety Institute – MacedoniaResults from the monitoring implemented, accompanied with data analyses and recommendations to improve the public procurement proc-ess and to reduce the possibilities for mal-practice and corruption were published in four quarterly reports. All quarterly moni-toring reports were appropriately present-ed on press conferences or public debates, thereby introducing the media, expert and broader public, as well as stakehold-ers, institutions and organizations with the project team’s findings and recommenda-tions.

The present annual report summarizes the monitoring results and reiterates the 10 key findings common for the previous four quarterly monitoring reports. The report also provides the key recommendations aimed to amend the relevant legislation and/or to improve the enforcement thereof.

10 KEY REMARKS ON PUBLIC PROCUREMENT PROCEDURES IN MACEDONIA 5

10 KEY REMARKS ON PUBLIC PROCUREMENT PROCEDURES IN MACEDONIA

Insufficient transparency and account-••ability on behalf of state institutions as regards public spending in public procurement procedures. Several pa-rameters indicate that the share of in-stitutions which lack accountability as regards the public procurements imple-mented is as high as 40%.

High share of public procurement pro-••cedures annulled. Decision on annulling the procedure was adopted in 25% of monitored procedures. This negative trend of increased share of annulled public procurement procedures was also confirmed with data obtained from the EPPS.

Contracting authorities take too long to ••perform bid-assessment and take the decision on the selection of the most favourable bid, which results in unnec-

essary delays in the public procurement procedure as a whole. In the procedures from the monitoring sample, decisions were taken within a period of 30 to 90 days.

Contracting authorities often use inad-••equate and manipulation-prone criteria for the selection of the most favourable bid.

Tender documents are sometimes used ••as means to manipulate the public pro-curements procedures.

Bid’s bank guarantees are set too high. ••Bank guarantees were required in more than 60% of procedures in the moni-toring sample, and were set in the maxi-mum amount of 3% of the bid’s value.

Low utilization rate of e-procurements. ••The utilization rate of the EPPS in 2009 accounted for only 2.5%.

High share of implemented procedures ••where transparency and application of public procurement rules were unsat-isfactory, which provides for malprac-tices.

Absence of supervision over public pro-••curement procedure implementation and realization of public procurement contracts.

Increased number of appeals lodged ••by companies against the decisions on public procurement and increased rate of such appeals approved by the SCPPA, which indicate that contracting authori-ties show an increased trend of making errors in the procedures.

6 KEY RECOMMENDATIONS AIMED TO IMPROVE THE PUBLIC PROCUREMENT PROCESS

KEY RECOMMENDATIONS AIMED TO IMPROVE THE PUBLIC PROCUREMENT PROCESS

The Public Procurement Law should in-••corporate penal provisions for contract-ing authorities that do not comply with the legal provisions, as is the practice in many states from the region and be-yond.

The Public Procurement Law should ••precisely stipulate the terms and con-ditions on procedure annulment and introduce the obligation on submission of argument-supported notifications re-lated to the bids’ rejection.

The Public Procurement Law should ••stipulate the deadlines on decision-tak-ing for the selection of the most favour-able bid or on procedure annulment, the duration of which should start from the public opening of bids.

Contracting authorities should comply ••with the legal obligation to submit ex-

plained notifications to participants in the procedure, for which a unified tem-plate can be developed, including the detailed description of the bid-assess-ment process and the decision taken.

The Methodology on Points-Based ••Ranking Criteria developed by the Min-istry of Finance should be adequately amended, or the Bureau of Public Pro-curements should develop guidelines or recommendations on the bid-as-sessment criteria for the selection of the most favourable bid, where certain criteria (prone to manipulation) will no longer be subject of bid-assessment, but an eligibility or participation criteria for economic operators.

Contracting authorities should pay ••more attention and time to develop-ment of tender documents, notably to technical specifications, and the BPP

should develop unified templates for certain procurement types.

Contracting authorities should publish ••tender documents on their websites or on the EPPS’ website and discon-tinue the common practice on imposing charges for tender documents.

The amount of bank guarantee should ••not be always set at the maximum threshold of 3% of the bid’s value.

Contracting authorities should more of-••ten use the EPPS, as a system that ena-bles application of the basic principles underlying the public procurements.

The Bureau of Public Procurements ••should undertake an analysis of the scope, legal justifiability, transparency and competitiveness, and should it deem reasonable, should suggest lim-

ANNUAL REPORT 7

ited use of negotiation procedures, and exclude from this group certain non-pri-ority services to which the public pro-curement rules can be applied.

The Bureau of Public Procurements ••should be involved in the supervision of legal proceeding in public procure-ments.

Rules should be adopted in the light of ••regulating the realization of signed pub-lic procurement contracts.

Special type of public procurement au-••dit should be stipulated in the legisla-tion.

Bureau of Public Procurements’ reports ••on the public procurement system should provide a more comprehensive analysis and relevant comments on all public pro-curement elements.

Contracting authorities should secure a ••continuity in the work of persons trained in the field of public procurements.

The State Commission on Public Pro-••curement Appeals should continue to publish on its website the decisions taken in appeal procedures and provide detailed rationales thereof.

The Public Procurements Law should ••stipulate that the SCPPA should ex of-ficio annul appealed procedures for which the contracting authority has not submitted the requested documents.

8 INTRODUCTION

1 INTRODUCTIONWHY PUBLIC PROCURE-MENT MONITORING?

Public procurements are a relatively new field in the Republic of Macedonia. Pro-curements have always been implemented by state and public institutions, for the pur-pose of meeting own and public demands, but it was not until 15 years ago when pub-lic procurements became subject to a more comprehensive regulation within the legal system of the Republic of Macedonia. Initial-ly addressed under secondary legislation, public procurements were later regulated under the primary legislation, when within a period of 10 years three public procurement-related laws were adopted. The last law was adopted in 2007, only 3 years after the adoption of the previous. The reason behind this fast adoption of new legislation was the need for full approximation of the Public Procurement Law in line with relevant EU directives from 2004.

Public procurements are a significant area also in financial and economic terms. Large portion of the state’s annual budget (approximately 25%) is spent on public pro-curements. Public procurements’ share in the GDP of the Republic of Macedonia ac-counted for 7% in 2008, while in the EU this

share is higher and accounts for approxi-mately 15%. „Trade“ with state authorities and institutions is the main activity and source of revenue for many companies. This implies that enormous resources are invested in the participation in public pro-curement procedures and the realization of signed public procurement contracts.

As a principle, the public procurement realization can be awarded to only one com-pany (contractor) from the pool of interest-ed participants and bidders. Therefore, it is necessary to clearly define the market level playing field that would on one hand enable fair competition and non-discrimination of bidding parties, and on the other hand pro-vide insight for the broader public, notably the citizens as taxpayers, thus accounting for public spending on procurement proce-dures.

These were the main reasons behind the CCC’s decision to implement the project “Monitoring the Implementation of the New Public Procurement Law”. The main goal was to determine whether PPL provisions were applied in consistent and regular man-ner, as the new legislation is (was) to provide better order, transparency and efficiency in the operation of authorities and in the field of public procurements at large.

WHICH PRINCIPLES UN-DERLINE THE MONITOR-ING IMPLEMENTATION?

Due to the project’s limited human and material resources, and the large number of public procurement procedures, at the very beginning the project team decided to ap-ply a sample-based method, meaning that the activities would address only a number of public procurement procedures. In that, it was deemed that the decision to moni-tor 40 procedures per quarter, i.e., a total of 160 procedures for the year 2009, and to include only those procedures implemented by central level contracting authorities will provide a representative sample for the rel-evant field of monitoring.

At the very beginning, it was determined that monitoring results and relevant reports thereby would provide only general findings and recommendations (common practice for monitoring projects), rather than burden the findings with details on the authorities and participants monitored. The sample se-lection paid due diligence in the light of in-cluding procedures implemented by various central level contracting authorities, in order to avoid any doubts that the monitoring tar-

ANNUAL REPORT 9

gets the operation of particular contracting authorities or that the project team holds negative attitudes for certain procurement types and authorities. Having in mind that a handful of authorities in the Republic of Macedonia are characteristic as regards the quantity of public procurements (number of procedures, procurements’ value), it was only natural to include these major public procurement-spending entities in the quar-terly monitoring samples.

WHICH METHODS AND TOOLS WERE USED FOR INFORMATION COLLEC-TION AND ANALYSIS?

From the project’s onset, the project team developed several types of questionnaires targeting different stakeholders in the field of public procurements. One of the question-naires was used by monitors when attending public opening of bids for the purpose of recording the actions taken at such events and collecting data for further analyses. The second questionnaire was developed and tar-geted the economic operators. This type of questionnaire contained general questions related to economic operators’ experience and opinion as regards the public procure-ments in the Republic of Macedonia, whereas the second set of questions inquired about

the economic operator’s participation in the specific procurement procedure moni-tored. Third questionnaire was developed and targeted contracting authorities. These questionnaires were submitted within a rea-sonable period after the public opening of bids, and included two sets of questions: gen-eral questions inquiring relevant information (public procurements’ plan, number of proce-dures implemented and like), and questions and data applications targeting the public procurement procedure monitored (decisions on the selection of the best bid or on proce-dure annulment, appeals...)

As the rate of responses to the question-naires submitted to contracting authorities was low, the project team decided to benefit from the instrument application for free ac-cess to public information. With the exception in the first quarter, the project team referred to the right to free access to public informa-tion in its official applications submitted to contracting authorities, thereby requesting insight in small number of documents de-veloped by or at the disposal of the targeted contracting authority. This resulted in greater responsiveness on behalf of contracting au-thorities and enabled the project team to dis-pose with relevant data necessary for under-taking quantitative and quality analyses.

Direct meetings and interviews were held with a number of economic operators and re-sulted in the acquisition of greater knowledge

and understanding of economic operators’ positions, as the answers obtained to relevant questionnaires were only limited in the infor-mation they can provide. Nevertheless, direct meetings/interviews were mostly used in the light of collecting information from state au-thorities which are not direct participants in public procurements, but hold certain (major or minor) competences in the relevant field. Some of these meetings were followed up with exchange of additional official informa-tion in written. The group of authorities tar-geted with such meetings and whose informa-tion provision contributed to better analysis include: the Bureau of Public Procurements (hereinafter: BPP), the State Commission on Public Procurement Appeals (hereinafter: SCPPA), the Administrative Court, the State Audit Office (hereinafter: SAO), the Public Prosecution, the Ministry of Finance (internal audit sector), the Financial Police and the At-torney General.

Finally, BPP’s and SCPPA’s official publi-cations proved a valuable source of informa-tion, at least in terms of economic analyses and legal protection. They include: BPP’s an-nual reports for 2008 and 2009, BPP’s inter-im report for the period January-June 2008, two electronic newsletters published by the BPP in the course of 2009, SCPPA’s report for the period November 2008 - March 2009, and decisions taken in appeal procedures published by SCPPA in the period January-March 2009.

10 SPECIFIC FINDINGS

2 SPECIFIC FINDINGS1INSUFFICIENT TRANSPARENCY AND

ACCOUNTABILITY ON BEHALF OF STATE INSTITUTIONS AS REGARDS

PUBLIC PROCUREMENT PROCEDURES. BY NOT COMPLYING WITH THEIR LE-GAL OBLIGATION TO PROVIDE PUBLIC INSIGHT IN DATA CONCERNING PUBLIC PROCUREMENT CONTRACTS SIGNED, CONTRACTING AUTHORITIES INCREASE DOUBTS ON POSSIBLE ILLEGAL AND CORRUPTION ACTIVITIES RELATED TO BUDGET SPENDING. SEVERAL CROSS-CUTTING PARAMETERS INDICATE THAT THE SHARE OF INSTITUTIONS WHICH LACK ACCOUNTABILITY AS REGARDS THE PUBLIC PROCUREMENTS IMPLE-MENTED IS AS HIGH AS 40%.

ANNUAL PLANS ON PUBLIC PROCURE-MENTS ARE ALSO NOT PUB LICLY AVAIL-ABLE, WHICH ADD ITI O NALLY INDICATES THE NON-TRANS PARENCY IN THE PROC-ESS. FOR THE TIME BEING, PUBLIC OPEN-ING OF BIDS IS THE SINGLE TRANSPAR-ENT ACTION IN PUBLIC PROCUREMENT PROCEDURES, AS IT HAS BEEN STATED THAT IN MOST CASES CONTRACTING AU-THORITIES APPLY THE RELEVANT LEGAL PROVISIONS.

Transparency is one of the main public procurement principles. In order to demon-strate transparency, contracting authorities need to be open in their operations and pro-vide for public insight therein, especially for the citizens. Contracting authorities’ willing-ness to provide public insight in information related to specific public procurement con-tracts guarantees that the selection of the most favourable bid incorporated the appli-cation of all relevant rules and that citizens’ money are spent for a particular purpose and in an efficient and cost-effective manner. Failure to provide information and the lack of accountability raise doubts on possible illegal and corruption activities in public procure-ments.

The PPL stipulates that within a period of 30 days from the contract signing the con-tracting authorities are obliged to submit/publish notifications on public procurement contracts signed for procurements of greater value for the BPP’s information system. Data analysis indicates that not only do contract-ing authorities fail to submit data on all contracts signed, but some of them do not submit any data at all. Notably, in the course of 2009 the Ministry of Labour and Social Policy, the Ministry of Local Self-Government, the Ministry of Agriculture and the Secretar-iat for European Affairs have not submitted a single notification on public procurement

contracts signed. At the same time, in the course of 2009 the said ministries announced 14 to 24 calls for public procurement contract awarding.

Moreover, the PPL stipulates that con-tracting authorities are obliged, twice a year, to submit records on contracts signed for small public procurement procedures in the amount of up to 5,000 EUR, which do not re-quire the announcement of call for bids and for the procurements in the amount of up to 20,000 EUR for goods and services and up to 50,000 EUR for works, which require an-nouncement of call for bids. The analysis shows that in 2009 40% of state institu-tions failed to comply with this legal obliga-tion. In that, one must take into consideration that as regards the public procurement pro-cedures in the amount of up to 5,000 EUR, which do not require the announcement of call for bids or public opening of bids, the sub-mission of records to the BPP is the only form of any kind of transparency and public infor-mation on public spending made under this type of procedures. The need to provide pub-lic insight in these data is confirmed by the fact that in the first half of the year a total of 26 million EUR were spent under these small procurement procedures. The group of insti-tutions that are not accountable for procure-ment contracts signed by bid collection with and without call for bids announcement, in-

ANNUAL REPORT 11

2 SPECIFIC FINDINGScludes 5 ministries, those being: the Ministry of Transport and Communications, the Minis-try of Local Self-Government, the Ministry of Agriculture, the Ministry of Defence and the Ministry of Culture. In comparison, in 2008 only one ministry did not submit records on these procedures.

40% of institutions did not submit re-quested information on public procurement procedures implemented, even after CCC submitted applications thereto. In this man-ner these state institutions breached the Pub-lic Procurement Law, but also the Law on Free Access to Public Information. Such behaviour demonstrated by the institutions make the assessment on public procurements’ compli-ance with relevant legal obligations and the assessment concerning the selection of the most favourable bid pursuant to selection cri-teria, impossible.

Annual plans on public procurements are not available for the public and they are frequently altered, thus indicating the in-sufficient transparency, as well as the poor annual needs-assessment and programming thereof. Unlike the previous PPL, which stipu-lated mandatory submission of annual plans on public procurements to the BPP, the new law revoked this obligation. The single obli-gation in this regard reads that contracting authorities’ annual plans need to be adopted

by 31 January for the current year. The law does not stipulate any obligations concerning their mandatory publication. Although these documents are considered to be of public character, except for the information related to the procurement’s estimated value, small number of contracting authorities published their relevant annual plans (on the website) or disclosed them upon the submission of ap-plications for free access to public informa-tion (1 from the 40 contracting authorities addressed with such applications). Frequent changes made to annual plans is partly due to frequent budget rebalances that affect the budget funds allocated for public pro-curements. However, changes to plans are also a result of poor estimates as concerns the procurement value, meaning that market research is not undertaken in order to deter-mine actual market prices, which in return re-quires corrections to be made to annual plans on public procurements.

Public opening of bids is considered to be the only transparent action in public pro-curement procedures, as in most cases the contracting authorities apply the relevant le-gal provisions. Pursuant to the new PPL, the public opening of bids includes several activi-ties, such as reading/disclosing certain bid-related information, and does not imply any kind of decision-taking, but merely recording the observations made in regard to the bids

submitted. The opening of bids for the moni-tored procedures allowed public attendance and active participation of economic opera-tors’ representatives (clarifications for the bid offered, and comments on other bids or on the commission’s work). The public open-ing of bids included legal actions pursuant to the law, as follows: opening of bids, one at a time, and reading out-loud relevant data con-tained therein, such as bidder’s title, the price and like. Attending bidders rarely remarked the said actions, but when they did, their remarks were appropriately recorded in the Minutes.

12

2HIGH SHARE OF PUBLIC PROCURE-MENT PROCEDURES ANNULLED - 25% OF MONITORED PROCEDURES,

I.E., APPROXIMATELY 17.5% OF ALL PRO-CUREMENT PROCEDURES ON NATIONAL LEVEL, BASED ON THE NOTIFICATIONS ON ANNULLED PROCEDURES FOR 2009. THIS PROBLEM WAS ALSO NOTED IN THE EUROPEAN COMMISSION’S PROGRESS REPORT FOR THE REPUBLIC OF MACE-DONIA, WHERE SPECIAL EMPHASIS WAS PUT ON THE ANNULMENT OF HIGH-VAL-UE INTERNATIONAL TENDERS. THE HIGH SHARE OF ANNULLED PROCEDURES IS DISTRESSING, HAVING IN MIND THAT IT CAN SERVE AS LEGALLY JUSTIFIABLE GROUND FOR THE USE OF NEGOTIATION PROCEDURES. ANNULMENTS ARE MOST FREQUENTLY DUE TO UNPROFESSION-ALLY DEVELOPED TENDER DOCUMENTS AND POOR BID-ASSESSMENT PROCESS. ALL THESE RESULT IN WASTE OF TIME, MONEY AND DECREASED TRUST OF ECO-NOMIC OPERATORS.

The share of annulled procedures is high – almost every fourth procedure is annulled! Decisions on full annulment were taken in 36 and on partial annulment in 4 of the total of 160 procedures monitored, which accounts for 40 procedures in total or 25%. This wor-rying trend was confirmed with data from the EPPS, where it has been determined that in the course of 2009 a total of 1,193 notifications on annulled procedures were submitted. Some of these notifications refer to procedures implemented in the course of 2008, but this is compensated with the fact that the number of annulled procedures in 2009 is still not fully computed. A rough estimate indicates that in 2009 the share of annulled procedures in the total number of calls for public procurements is approxi-mately 17.5%. This represents an increase in the share of annulled procedures compared to 2008 figures, when 10.5% of procedures were officially annulled.

The number of annulled procedures that were subject of the present monitoring in-cluded the big international tenders, those being: the purchase of double-deck buses, implemented by the Ministry of Transport and Communications; the purchase of labo-ratories, implemented by the Secretariat for European Affairs; the superstructure on the Parliament building, implemented by the Parliament of the Republic of Macedonia;

the construction of the church on the “Mac-edonia” square, implemented by the Minis-try of Culture, etc. All of these procedures attracted great public interest and partici-pation of international companies. Annul-ments thereof contribute to the creation of negative image of relevant contracting authorities and resulted in many economic operators losing their trust and interest for future participation on tenders. Annul-ments were also addressed with a negative remark in the European Commission’s 2009 Progress Report for the Republic of Mac-edonia.

Provisions stipulated under Article 169, paragraph 1, lines 2, 4, 5, 6, from the PPL were most commonly provided by the con-tracting authorities as reasons for the an-nulment of procedures. They read:

- in case of contingencies in the contract-ing authority’s budget;,

- the procurement needs of the contract-ing authority changed due to unpredict-able and objective circumstances;

- failure to obtain a single acceptable bid;- prices and terms and conditions bidden

for the contract implementation were more unfavourable than the actual mar-ket terms and conditions and prices;

- bidders failed to fulfil certain eligibility criteria required in the call for bids.

SPECIFIC FINDINGS

ANNUAL REPORT 13

Particularly problematic is the annul-ment of procedures where several bids have been obtained (up to 5 bids were submit-ted in several procedures annulled), but the public procurement commissions assessed all bids as unacceptable. Indication of such reasons for the annulment of procedures raises doubts that certain calculations of the contracting authority did not material-ize (they were unable to select their “pre-ferred bidder”). Moreover, when contracting authorities indicate that “prices and terms and conditions bidden for the contract im-plementation were more unfavourable than the actual market terms and conditions and prices“, it only confirms the previously in-ferred conclusion that market prices were not researched prior to the adoption of the annual plan on public procurements and the public procurement decision - docu-ments that indicate the procurement’s es-timated value (allocated funds). Annulment of procedures on the grounds of “changes of contracting authority’s needs due to un-predictable and objective circumstances“ can be deemed reasonable and justifiable, provided these circumstances refer to the budget rebalance (decrease), for which many contracting authorities have little or no competence.

Annulment of procurement procedures includes number of negative consequenc-es. Any annulment implies loss of time and

money, primarily for the contracting au-thority concerned. Moreover, they result in delays concerning the fulfilment of previ-ously identified public procurement needs on the detriment of beneficiaries thereof. This also affects the economic operators, as they waste time in bid preparation and have their funds tied to bid submission, as well as securing necessary documents and the bank guarantee. More concerning is the fact that procedure annulment on the grounds of bids’ unacceptability provides the legal possibility for implementing the negotia-tion procedure with call for bids. Any annul-ment implies delays in the planned purchase deadline and opens the possibility to justify the contract signing, by classifying it as “ur-gent“, by means of negotiations without call for bids. The negotiation procedures should be applied in exceptional situations, as they provide greater possibilities for malpractice due to their low degree of transparency.

14

3IN THE ABSENCE OF LEGALLY STIPULATED DEADLINES, CON-TRACTING AUTHORITIES TAKE TOO

LONG TO ASSESS THE BID AND TAKE THE SELECTION DECISION, THUS UN-DULY DELAYING THE OVERALL PUBLIC PROCUREMENT PROCEDURE. THE PE-RIOD NECESSARY FOR DECISION-TAKING IN MONITORED PROCEDURES RANGED FROM 3 DAYS TO 13 MONTHS, FROM THE DAY OF THE PUBLIC OPENING OF BIDS. IN MOST PROCEDURES, DECISIONS ON THE SELECTION OF THE MOST FAVOURABLE BID WERE TAKEN IN A TIME FRAME OF 30 TO 90 DAYS. THESE FACTS INDICATE THE INSUFFICIENT COMMITMENT AND EFFICIENCY ON BEHALF OF CONTRACT-ING AUTHORITIES FOR MEETING THE PROCUREMENT NEEDS. AT THE SAME TIME, THEY CREATE UNCERTAINTY FOR PROCEDURES’ PARTICIPANTS WHO FACE PROBLEMS IN TERMS OF EFFICIENT PLANNING AND ALLOCATION OF THEIR RESOURCES.

For different types of procurements, the PPL stipulates the elapse a minimum period from the announcement of the call for bids to the public opening of bids. These dead-lines, as long as they may seem for certain procedures, are unified at EU level and can-not be changed on national level. PPL also stipulates another binding deadline for con-tracting authorities. Notably, within a period of 3 days from adopting the decision on the selection of the best bid, the contracting authorities are obliged to submit it accom-panied with a notification to all participants in the procedure. Monitoring activities iden-tified compliance with the PPL-stipulated deadlines. Nevertheless, compliance with the said deadlines cannot compensate the long period required by commissions to as-sess the bids, and the responsible persons to take the decision. When performing the said activities, contracting authorities behave rather “flexibly”. It is exactly the contract-ing authorities that create the ambience for procedure delays and unduly procurements intended to meet their and the public de-mand.

The PPL does not stipulate the period within which contracting authorities are obliged to take a decision in the specific procedure, regardless whether it is a mat-ter of decision on annulling the procedure or on the selection of the best bid. In terms of the monitored procedures, the period necessary for decision-taking ranged from minimum 3 days to 13 months, from the day of the public opening of bids. In most procedures, decisions on the selection of the most favourable bid were taken within a period of 30 to 90 days. Distressing is the fact that such long periods are applied in procedures of small value, i.e., procedures where the lowest price is the single selec-tion criterion. This keeps the economic op-erators in suspense. They are hesitant as regards the acceptance of other business possibilities and participation in other same or similar tenders, as they cannot plan their resources (labour, production facilities, im-ports, stocks, and like). For the economic operators, participation in certain public procurement procedure implies costs, which are increased in situations of unduly delays in decision-taking.

SPECIFIC FINDINGS

ANNUAL REPORT 15

4BROAD DISCRETIONARY RIGHTS OF CONTRACTING AUTHORITIES AS REGARDS THE SELECTION OF

CRITERIA AND ELEMENTS TO BE APPLIED IN THE CONTRACT-AWARDING PROCESS OFTEN LEAD TO THE SELECTION OF IN-ADEQUATE AND MANIPULATION-PRONE (SUBJECTIVE) CRITERIA AND ALLOCA-TION OF DISPROPORTIONALLY HIGH NUMBER OF POINTS TO SUCH ELEMENTS. FOR SAME TYPES OF PROCUREMENTS, THE CONTRACTING AUTHORITIES SET NON-UNIFIED (DIFFERENT) CRITERIA AND POINT-ALLOCATIONS. MANIPULA-TION-PRONE ELEMENTS ARE FREQUENT-LY USED FOR BID ASSESSMENT, SUCH AS PERFORMANCE/DELIVERY DEADLINE OR WARRANTY PERIOD. SUCH BROAD RIGHTS OF CONTRACTING AUTHORITIES IN SETTING SELECTION CRITERIA LEAVE SPACE FOR POSSIBLE SUBJECTIVE AS-SESSMENT AND MALPRACTICE.

Two types of criteria are considered mandatory for application in public procure-ment procedures. The first group concerns the eligibility of the economic operators, while second apply to the selection of the most favourable bid. The first group of cri-teria assess the ability to participate of eco-nomic operators, and the second are used for the evaluation of their bids. Assessing economic operators’ eligibility is the first as-sessment made by the public procurement commission and first filter where economic operators can be eliminated from participa-tion, thereby withdrawing their bids from further evaluation. If the economic opera-tor passes this test, the bid submitted will be reconsidered in detail and assessed (with point-allocation) pursuant to the selection criteria. Contracting authorities commonly confuse these criteria as bid-assessment criteria. There are cases, also in the moni-tored sample, where a particular criterion was subjected to point-allocation, although by its nature and the common logic it should be an eligibility criterion, as it is related to the economic operator. Typical examples thereof can be seen in the reference deliv-ery lists, which should serve the purpose of determining economic operator’s technical eligibility, and not be subjected to point-allocation.

In compliance with Article 160 from the PPL, contracting authorities can award the public procurement contract by applying the criterion “economically most favourable bid” or “lowest price”. For that purpose, both the

PPL and the Methodology on Points-Based Ranking Criteria stipulate the elements of the criterion “economically most favourable bid” (price, quality, technical characteristics, delivery deadline, payment manner, product warranty, etc.) from which the contracting authority can select the most appropriate ones to apply in the procurement in ques-tion. However, the PPL and the relevant sec-ondary legislation do not provide rules or guidelines on the selection of criteria (ele-ments) to be applied in particular procure-ment types. This implies absolute freedom in assessment criteria and elements selec-tion, as well as the relevant point-allocation. Such practices lead to absence of uniformed application of criteria, where different con-tracting authorities apply utterly different (sometimes opposite) criteria and elements to same procurement types, resulting in dif-ferent evaluation thereof.

For example, in the procurement proce-dure for vehicles, one contracting authority determined the following criteria as part of the criterion on economically most favour-able bid: price - 90 points; delivery deadline - 5 points; payment manner, deadline and conditions - 5 points, while another con-tracting authority determined the follow-ing: price - 55 points; vehicle maintenance - 20 points; new car assessment programme (NCAP) - 15 points; catalogue-based average fuel consumption - 10 points.

Most often, contracting authorities se-lect the economically most favourable bid

16

as a criterion for public procurement con-tract awarding, rather than the lowest price criterion. The ratio of their application is 87:13 in favour of the economically most fa-vourable bid.

The criterion “economically most favour-able bid” can include different combinations of elements subject to point-allocation. Major problems related to the application of the said criterion and elements therein include subjective evaluation, malpractices and favouring certain bidders. This was con-firmed in the monitoring findings, where it was noted that contracting authorities fa-vour and provide advantage for certain bid-der by allocating more points to the price or quality elements when setting the criteria for the selection of the most favourable bid. The monitoring identified broad applica-tion of manipulation-prone elements, such as the delivery deadline, payment deadline, warranty and reference list. Application of these criteria raises doubts in regard to cost-effective and efficient money spending.

Examples from the monitored sample provide evidence in support of the problems related to the selection of criteria, espe-cially those subjected to point-allocation. They include a case where the criterion “economically most favourable bid” was se-lected as contract-awarding criterion with the following point allocation: 90 points for the price and 10 points for the quality. The procurement in question was awarded to an

economic operator whose bid was several times more expensive than the cheapest one. Such examples indicate the existence of possibilities for malpractice, even in cases when maximum of 10 points are al-located for elements that are prone to sub-ject assessment, such as the quality. In an-other case, one economic operator lodged an appeal against the decision by which its bid was rejected, although it was by 22% cheaper compared to the selected bid. In the given case, the bid submitted by the economic operator in question was awarded small number of points for the quality ele-ment, unlike the maximum number of points given to the bid submitted by the economic operator to which the contract was awarded. Manipulation in the selection of the most fa-vourable bid was also evident in cases where the “warranty” element of the bid is part of the selection criteria, rather than being as-sessed as eligibility criterion for participa-tion in the procedure. Practice shows that these elements are allocated points in the bid-assessment stage, sometimes as high as 30 points, which enables favouring of the more expensive bid.

The problem related to setting criteria for the selection of the most favourable bid was indicated in the interviews carried out with economic operators. Most of their re-marks refer to the selection criteria, but it was noticed that even the economic opera-tors hold different and sometimes confront-ing positions on this issue. Some of them

disagree with the selection of the lowest price as the major criterion, while the others believe that key problem related to the cri-terion “economically most favourable bid” is the subjective point-allocation as concerns the quality of the product, or the service.

Opponents of the criterion “lowest price” believe that in such cases contracts are awarded to companies whose goods and services are of significantly lower quality, which results in the need of new procure-ments of same type of goods and instead of saving, the contracting authority increases its consumption. On the other hand, most common problem companies face when the quality of goods or services procured is as-sessed concerns the improper point-allo-cation. Notably, in most cases, contracting authorities instead of setting precise point-allocation to different aspects of the qual-ity, add or reduce points for quality without providing relevant grounds thereof. Such statements of companies were confirmed with the large number of appeals they have lodged on the grounds of irregular quality-based bid-assessment.

SPECIFIC FINDINGS

ANNUAL REPORT 17

5TENDER DOCUMENTS ARE SOME-TIMES USED AS MEANS FOR MAL-PRACTICE IN PUBLIC PROCURE-

MENT PROCEDURES. THE POSSIBIL-ITY FOR PUBLISHING TENDER DOCU-MENTS ON THE WEBSITE IS RARELY USED, WHICH PREVENTS SHORTENING OF THE DEADLINE FOR BID SUBMIS-SION. TOO OFTEN ECONOMIC OPERA-TORS ARE REQUIRED TO SETTLE THE CHARGE FOR TENDER DOCUMENTS IN THE AMOUNT OF 500 TO 6,000 MKD. TENDER DOCUMENTS ARE OFTEN SUB-JECTED TO AMENDMENTS, WHICH RE-SULTS IN PROCEDURE DELAYS.

Inadequately or tendentiously devel-oped tender documents result in economic operators’ early withdrawal from participa-tion in the procurement procedures, thus decreasing competition and increasing the price of public procurements. Several pro-cedures from the monitoring sample and economic operators’ responses indicate that criteria on economic operators’ eligibility and the technical specifications as integral parts of tender documents had or can have discriminatory effects as they do not provide market level playing field.

Despite the clearly indicated legal possi-bility, downloadable tender documents are

rarely published on contracting authority’s website, although this practice could short-en the duration of the procedure and enable savings for the economic operators. Failure to do so is partly justified with the reasoning that if tender document are published on the contracting authority’s website, the author-ity does not have insight in the number and titles of economic operators that have down-loaded the tender documents, which can lat-ter prevent the contracting authority from forwarding the interested economic opera-tors the possible amendments made to docu-ments. Nevertheless, if tender documents and the complete procedure are implement-ed via the EPPS, the said system provides records on economic operators that have downloaded the documents in question and generates automated e-mail notifications for all changes made to tender documents. Ar-ticle 38 from the PPL clearly stipulates that any amendment to tender documents should be published in the manner in which tender documents were initially published (same website), which makes the contracting au-thorities’ justifications unfounded.

Contracting authorities have adopted the practice on imposing a charge for ten-der documents. The new PPL was to discon-tinue the practice of imposing unreasonably high charges for tender documents. There-fore, Article 37 from the PPL stipulates that

should such fee is imposed, the amount thereof must not exceed the actual costs incurred for copying and delivery of tender documents. Unfortunately, as high as 80% of monitored procedures required the settle-ment of tender documents’ charge. In most cases, this charge amounted to more than 1,000 MKD, even for procurement proce-dures with small value, or tender documents with only few pages. Setting these charges at high amounts prevents greater competition, as numerous small companies consider them too high, especially knowing that sometimes they participate on several tenders.

Tender documents are frequently amended, which indicates that they have been poorly developed or prematurely pub-lished without the inclusion of all aspects rel-evant. Changes made to tender documents increase communication costs, but more importantly – unduly prolong the already ini-tiated procedure, since in the case of major changes made to the documents in question, the contracting authority is obliged to extend the deadline for bid-submission and delay the public opening of bids. In several procedures from the monitoring sample, substantial and legally prohibited changes were made to ten-der documents immediately before the expi-ration of the bid-submission deadline, which did not result in the delay thereof.

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6VERY OFTEN BANK GUARANTEES ARE REQUESTED FOR BID SUBMIS-SION. IN ALMOST ALL CASES THE

BANK GUARANTEE IS SET AT THE HIGH-EST THRESHOLD (3% OF THE BID’S VAL-UE), WHICH CREATES PROBLEMS FOR SOME ECONOMIC OPERATORS AND CAN RESULT IN DECREASED COMPETITION.

In the light of protecting contracting authorities from unserious bidders or pub-lic procurement contract awarding to the bidder who will manipulate and deviate from the provision contained in the public procurement contracts, the PPL provides the possibility for contracting authorities to request the bidders to provide bank guar-antees. Although the PPL stipulates the amount of the bank guarantee to be set at up to 3% from the bid’s value, in practice it is exactly the highest threshold of 3% of bid’s value that is requested for the guar-antee. Such practice puts most economic operators in disadvantage, especially those participating in several procedures at the same time. Moreover, contracting authori-ties most often require a bank guarantee for the contract performance set at 15% from the value of the contract signed, which is the maximum amount anticipated under the PPL.

More than 60 % of procedures from the monitoring sample have requested bank guarantees. In most cases, the bank guaran-tee was set at the maximum amount of 3% from the bid’s value.

The bank guarantee requirement is un-doubtedly necessary, considering the bad experience of contracting authorities with unserious bidders, who either withdraw prior to signing the contract or provide poor realization of contracts signed. Nev-ertheless, imposing such requirements in almost all procedures and setting them at the highest possible amount cannot be justi-fied. This is particularly true for the sectors where bidders are known in advance, and where there are no inherent risks, as it is a matter of serious and renowned companies. Also, problems appear when for small value procurements the bank guarantee is set at the highest legally stipulated amount or in procedures where the participation of small companies is anticipated, which can ulti-mately lead to smaller competition.

SPECIFIC FINDINGS

ANNUAL REPORT 19

7LOW UTILIzATION RATE OF ELEC-TRONIC PROCUREMENTS, WHICH WERE INTRODUCED BY THE BPP WITH

THE SUPPORT FROM USAID, AND AIMED TO PROVIDE ELECTRONIC IMPLEMENTA-TION OF PUBLIC PROCUREMENT PROCE-DURES AND GREATER EFFICIENCY AND MONETARY SAVINGS, NOTABLY WITH THE APPLICATION OF E-AUCTIONS. THE UTILI-zATION RATE OF THE EPPS FOR 2009 AC-COUNTED FOR 2.5%, I.E., 170 PROCEDURES FROM THE TOTAL 6,800 WERE IMPLE-MENTED VIA THE EPPS, WHERE 110 PROCE-DURE WERE IMPLEMENTED AS E-AUCTIONS (1.6%). THE COST-BENEFIT ANALYSIS OF 32 E-AUCTIONS IMPLEMENTED PROVIDED THE CONCLUSION THAT THEY RESULTED IN SAVINGS AMOUNTING TO 1.2 MILLION EUR. THIS INDICATES THAT CONTRACTING AUTHORITIES RARELY DECIDE TO BENEFIT FROM THE ADVANTAGES OFFERED BY THIS SYSTEM, AS ITS APPLICATION IS ON VOL-UNTARY BASIS, ALTHOUGH THE APPLICA-TION THEREOF PROVIDES FOR ACTUAL SAVINGS.

In its strategic documents, EU has set forth several objectives, the most important one requiring 100% electronic (on-line) ac-cessibility of public procurement information and 50% application of electronic means in public procurement procedure implementa-tion. The deadline for the achievement of these objectives is set for 2010. Having in mind that Republic of Macedonia is a coun-try aspiring for full-fledged EU member-ship which implies approximation with and transposition of EU acquis and standards, the Republic of Macedonia decided to take the lead among the countries aspiring to achieve the EU-set targets in the field of public procurements. Therefore the Repub-lic of Macedonia already established the legal framework and the relevant software application for e-procurements. Namely, the all-encompassing Electronic Public Procure-ment System (hereinafter: EPPS) was intro-duced on 1 January 2008.

Only few contracting authorities saw the advantages from the use of this system, whereas majority of contracting authorities still treat the system as “distant future”. The BPP, in cooperation with the USAID-funded “e-Government” project, in the course of 2009 delivered a total of 30 training ses-sions and presentations, particularly tar-geting representatives from contracting authorities. These training sessions were at-tended by 200 participants, indicating that the level of knowledge among end-users has been increased. In the course of 2009, the

EPPS was used by 30 from the total of 1,000 contracting authorities, whereas it can be concluded that around 10 authorities regu-larly use the said system.

THESE FIGURES LEAD US TO THE FOLLOWING CONCLUSIONS:

- the necessary preconditions for the system application have been secured and include fee-of-charge use of the relevant software application, delivery of hands-on training for system users at contracting authorities and provision of needed technical support;

- sizeable savings have been achieved by the contracting authorities that have imple-mented e-auctions;

- there is low rate of system utilization, al-though it provides for numerous advan-tages, including the increased transpar-ency, which for most contracting authori-ties seems something they do not wish to demonstrate. This raises the question on the ability and willingness of contracting authorities to comply with the legal obli-gation stipulating that 30% from the to-tal value of public procurements in 2010 should be implemented by means of e-auctions.

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8LARGE SHARE OF PROCEDURES WERE IMPLEMENTED WITHOUT TRANSPARENT PROCEEDINGS AND

CONTRARY TO THE PUBLIC PROCURE-MENT RULES, WHICH ENABLED GREAT OPPORTUNITIES FOR MALPRACTICES. IN THE COURSE OF 2009, A TOTAL OF 719 PUBLIC PROCUREMENT CONTRACTS WERE AWARDED BY MEANS OF NEGO-TIATION PROCEDURE WITHOUT THE AN-NOUNCEMENT OF CALL FOR BIDS (IMME-DIATE AGREEMENTS). THE USE OF SUCH PROCEDURES IS JUSTIFIED WITH URGEN-CY OR PROCUREMENT SUPPLEMENTS. PROCUREMENT CONTRACTS AWARDED FOR SO CALLED NON-PRIORITY SERVIC-ES (SERVICES CONCERNING TEMPORARY EMPLOYMENT, TRANSPORTATION, HOTEL, CATERING, LEGAL AND OTHER SERVICES) WHICH APPLY ONLY SMALL NUMBER OF RULES STIPULATED UNDER PPL, AC-COUNT FOR A TOTAL PUBLIC SPENDING ExCEEDING 15 MILLION EUR.

Large number of procurement contracts were awarded by means of negotiations without announced call for bids. The simplic-ity and speed of these procedures account for the main reasons behind the large number of public procurement contracts awarded by means of negotiation procedures without an-nounced call for bids. In 2008, the number of

such contracts was 1028, whereas in 2009 ac-cording to the still unofficial data this figure is 719 contracts signed. However, considering the lack of transparency on behalf of state authorities, these data obtained from EPPS should be considered as incomplete. The main problem related to these procedures is the fact that they provide multiple possibilities for malpractice in the procurements made, as follows: provides justification of “utter emer-gency” for their implementation; procure-ment supplements cannot be technically or economically separated from the basic pro-curement or that there is a need for perform-ing matters necessary for the completion of the basic contract. All these provide an op-portunity for conscious evasion of application of relevant elements in the basic contracts, hence resulting in elimination of competitors.

Application of small number of rules as

stipulated under PPL in the procurement of so called non-priority services results in decreased transparency and accountability on behalf of contracting authorities. Pursu-ant to article 17 from the PPL, contracting authorities can procure various types of serv-ices. The said article provides for the catego-rization of services into “priority” and other or “non-priority” services. The services falling under the first group imply the application of provisions contained in the PPL also applica-ble for any other type of public procurements. The so called “non-priority” services are reg-ulated under a more liberal regime on public

procurement awarding. They include public procurements related to temporary employ-ments, transportation, hotel, catering, legal, educational, health care, social, cultural, sport and other services. When procuring the said types of services contracting authorities are not obliged to apply the stipulated deadlines and forms for their announcement, and are allowed to modify the specific rules on pro-cedure implementation stipulated under the PPL, etc.

In the implementation of such procedures it is required for contracting authorities to secure a certain degree of transparency and to guarantee non-discrimination of economic operators. Nevertheless, the practice shows that due to the procurement specifics and the great flexibility, some of these public pro-curements do not provide for full application of these principles and the contracting au-thorities are given extensive rights to decide if and to which extend they will apply them. This is particularly common in cases of pub-lic procurement of services in the value of up to 20,000 EUR. In 2008, a total of 1,064 public procurement contracts of this type were signed, with a total value of 4.9 billion MKD, i.e., 80 million EUR. The share of “non-priority” services in the total funds awarded as public procurement of services accounts for 15 million EUR in 2008, or approximately 19%. These figures do not include segregated data on “non-priority services” in the amount of up to and exceeding 20,000 EUR.

SPECIFIC FINDINGS

ANNUAL REPORT 21

9THERE IS NO SUPERVISION ON THE IMPLEMENTATION OF PROCEDURES AND REALIzATION OF PUBLIC PRO-

CUREMENT CONTRACTS. THERE ARE NO COMPLETE AND CLEAR INTERNAL AUDIT SYSTEMS, WHICH RESULTS IN MANY AU-THORITIES THAT HOLD RELEVANT COM-PETENCES (THOSE BEING: SAO, PUBLIC PROSECUTION, ATTORNEY GENERAL) FAILING IN MOST CASES TO UNDERTAKE RELEVANT ACTIONS FOR SANCTIONING ILLEGAL ACTIONS AND MALPRACTICES IN THE PUBLIC PROCUREMENT PROCESS-ES OR TAKING ACTIONS THAT DO NOT EN-SURE FUTURE DEFERRING EFFECT. THE PPL DOES NOT STIPULATE PENAL PROVI-SIONS, AND THEREFORE THE FAILURE OF CONTRACTING AUTHORITIES TO COMPLY WITH CERTAIN OBLIGATIONS, WHICH WAS IDENTIFIED IN THE COURSE OF PRESENT MONITORING (FOR ExAMPLE, FAILURE TO SUBMIT/PUBLISH THE NOTIFICATION ON CONTRACTS AWARDED) GOES BY UN-SANCTIONED.

Pursuant to Article 232 from the PPL, the SAO is competent for auditing the pub-lic spending and use in public procurements made by contracting authorities. According to its methodology of work and human re-sources available, SAO is not able to under-take regular (annual) audits at all contract-ing authorities, but contracting authority are audited every 3 to 4 years. Most irregu-larities determined by SAO concern actions that precede or follow the completion of the procedure on public procurement contract awarding, i.e., the stage of procurement planning and realization. The last stage is very important, as it has not been regu-lated under the PPL and there are no clear and rigid control mechanisms thereby. The Public Prosecution, based on the reports submitted by SAO and concerning the iden-tified irregularities and illegal actions taken by contracting authorities, very often fails to found reasonable grounds for criminal prosecution. Thus, in the cases of reason-able doubts on criminal acts committed in the operation of contracting authorities, including public procurement procedures, the Public Prosecution requires the MOI to undertake additional investigative actions, but this is where the whole procedure usu-ally comes to a halt. The court resolution (criminal procedure) of illegal proceedings on public spending is disabled by means of delays or failure to submit information on requested investigative actions.

Although by means of its title, the Law on Public Internal Financial Audit suggests possible competences of internal auditors and/or the public internal financial audit sector at the Ministry of Finance in regard to determining irregularities in the finan-cial operations of contracting authorities, the law’s objective – as confirmed by the practice insofar – is to protect the respon-sible person from possible malpractices and abuses performed by employees at relevant authorities. This reads that even in the case of illegal operations pertaining to public pro-curement procedures, they are addressed internally within the contracting authority.

Pursuant to Article 207 from the PPL, the Attorney General can request legal pro-tection in public procurement procedures, but in reality this governmental entity has not initiated relevant interventions.

Relevant legislation from the countries targeted by the project team and aimed to provide comparative analysis (Slovakia, Al-bania, Slovenia, Croatia and Serbia), with the exception of Slovenia, stipulates the estab-lishment of special administrative bodies on monitoring and advancing public procure-ment processes, which in their functions are similar to the Macedonian BPP. However, these bodies hold an additional competence – to supervise the public procurement proc-ess. In that regard, the Croatian and Serbian

22

laws on public procurements stipulate the competences of these administrative bod-ies for initiating misdemeanour procedures, whereas in Slovenia this competence is giv-en to the National Audit Commission. The Albanian law anticipates the establishment of a separate body – public procurement advocate (attorney-at-law) – which is com-petent to perform supervision of public pro-curements for the benefit of economic op-erators. According to the Macedonian PPL, these competences are given to the BPP or any other existing authority.

The legislation of the countries targeted with the comparative analysis provides pe-nal provisions for failure to enforce certain legal provisions, which again is not inherent for the Macedonian law. This provides for failure of contracting authorities to comply with the obligations stipulated under the PPL to go by unsanctioned. Knowledgeable of the possibility to go by unsanctioned even in cases when they breach legally stipulated deadlines and obligations on notifications, certain contracting authorities demonstrate a rather loose and unserious approach to obligations’ fulfilment, as was concluded in the course of the present monitoring.

10DECISION-TAKING BY SCPPA IN APPEAL PROCEDURES WAS ACCELERATED. NUMBER OF

APPEALS APPROVED BY SPPAC (EVERY FOURTH) WAS ALSO INCREASED. THE INCREASED NUMBER OF APPROVED AP-PEALS INDICATES THE FACT THAT CON-TRACTING AUTHORITIES SHOW GREATER TREND OF BREACHING LEGAL PROVI-SIONS. AS OF APRIL 2009, THE SCPPA DISCONTINUED ITS PRACTICE TO PUB-LISH ITS DECISIONS ON THE WEBSITE, THUS REDUCING THE TRANSPARENCY OF ITS OPERATIONS.

2009 was the first year of operation pursu-ant to the new status, composition and com-petences of the State Commission for Public Procurement Appeals (hereinafter: SCPPA). According to the previous PPL, appeals were lodged in front of a second-instance commis-sion within the Government, which lacked professionalism. The work of this commission was assessed as inefficient (as decisions were taken after several months) and almost com-pletely dependent on the Government. From these reasons, the new PPL stipulated that the appeals against public procurement pro-cedures will be considered by a commission appointed by the Parliament of the Republic of Macedonia, whose composition shall em-body relevant professionals and shall impose certain criteria and conditions for recruitment

therein. By the end of 2008, the SCPPA was established and initiated its work. The new le-gal solution provided for dramatic decrease of the time needed for taking decisions in ap-peal procedures, which was confirmed in the interviews carried out with participants in public procurements, primarily the econom-ic operators, but was also confirmed in the monitoring findings. In this aspect, progress was noted, as the legal protection mechanism (appeal procedure) introduced is much more efficient.

Worrying is the situation that economic operators rarely decide to appeal the actions and decisions taken by the contracting au-thorities. Main reasons behind the reluctance to lodge appeals, even in cases when eco-nomic operators have remarks on the legal proceedings taken within the procedure, are as follows:

- high administrative fees – the new PPL stipu-lated a charge for appeal processing in the amount of 100-400 EUR depending on the value of the procurement type. On one side, such solution contributed to the decreased submission of unreasonably grounded ap-peals, which unnecessary burdened and de-layed the procedure, but on the other side has contributed to a certain level of reluc-tance on behalf of economic operators to lodge appeals, even when they believe that violations have been made in the course of the procedure; and

SPECIFIC FINDINGS

ANNUAL REPORT 23

- the previously acquired mistrust in the sec-ond-instance decision-taking body – having in mind the inefficiency and the types of decisions taken by previously instituted ap-peal commission, the economic operators lost their trust that the appeal lodged will be approved and that their relevant rights will be protected.

Nevertheless, statistics indicate that the

number of appeals lodged is again showing a trend of increase in comparison to the initial period of SCPPA operation.

SCPPA more often finds the appeals to be

reasonably grounded and therefore approves them – every fourth appeal is approved. This indicates the fact that contracting authori-ties show an increased trend of violation of legal provisions, i.e., make errors in the pro-cedures. Most common reasons for appealing public procurement procedures and most fre-quently indicated violations therein pertain to the bid-assessment stage, when the com-mission reconsiders the bids submitted and awards points on the basis of previously set criteria. At this stage, it often happens for most bids to be rejected on the basis of for-mal reasons. Usually, as was the case before, the notification submitted to economic oper-ators lists that in compliance with the tender documents, and upon the bid-assessement, a particular bid was selected, but without provi-sion of explanation concerning the elements on which the said decision was taken, or the

reasons on the basis of which other bids were rejected. This raises certain doubts with eco-nomic operators concerning the utter subjec-tivity in bid-assessment. Also, commissions do not respect the legal provision on provid-ing rationale on the selection or rejection of particular bids obtained. Contrary to the pro-visions contained in Article 168 from the PPL, which guarantee notifications, including the reasons for the rejection or non-selection of a particular bid, the notifications on the selec-tion of the most favourable bid continue to be void of detailed information thereof. Majority of omissions and irregularities in the proce-dures were observed with local level contract-ing authorities, in particular with primary and secondary schools, kindergartens and health care institutions, while on the central level major omissions were observed with con-tracting authorities operating in the field of health care, in particular the clinics and the specialized health care facilities.

Contracting authorities often disrespect

the legal obligation stipulating that within a period of 5 days from the receipt of an ap-peal lodged by an economic operator, they are to forward SCPPA all documents related to the appealed procedure. The information obtained from SCPPA indicate that very of-ten this obligation is not complied with, and that there are cases where the entire public procurement procedure was annulled on that ground. For the purpose of having the proce-dure annulled on this ground and for the pur-

pose of imposing sanctions and disciplinary measures to contracting authorities, the eco-nomic operators must first lodge an appeal. Unfortunately, the plaintiffs are not provided with official channels of information so as to know whether the contracting authority in question enforced this obligation and ob-served the stipulated deadline.

SCPPA discontinued its practice to pub-lish on its website the decisions taken in ap-peal procedures, and has not used the legal possibility to publish the said decisions in the Official Gazette. Pursuant to Article 224 from the PPL, the SCPPA is obliged to pub-lish the decisions taken in appeal procedures on the BPP’s website. In the first quarter of 2009, SCPPA adhered to this obligation and published its decisions on the BPP’s website. However, this practice was discontinued in the remaining nine months of 2009. The ex-planation obtained from SCPPC was that they lacked time and resources to comply with the said obligation, but that from 1 January 2010 they will enforce it and will start publishing the decisions in their integral or abbreviated form on their website. Failure to publish these decisions results in decreased transparency of appeal procedures and the public is deprived of the possibility to obtain more information on the decisions taken by SCPPA.

24 DETAILED RECOMMENDTIONS AIMED TO IMPROVE THE PUBLIC PROCUREMENT SYSTEM

3 DETAILED RECOMMENDTIONS AIMED TO IMPROVE THE PUBLIC PROCUREMENT SYSTEM

PPL should incorporate penal provi-••sions, as is the common practice adopt-ed by most countries from the region and beyond – Legal mechanisms, nota-bly sanctions, should be introduced in the relevant legislation and imposed to contracting authorities failing to fulfil the obligations stemming from the PPL (for example, failure to submit the noti-fication on the public procurement con-tract signed). Sanctions can also apply to authorities denying cooperation in the course of audits, i.e., authorities that do not submit requested information and do not proceed in compliance with their competences and within the legally stipu-lated deadline.

PPL should define in detail the terms ••and conditions under which a public procurement procedure can be annulled and should introduce the obligation on providing argument-supported rationale on the unacceptability of bids obtained – The broadly defined legal framework stipulating the terms and conditions for annulment of public procurements should be narrowed. In the light of increasing the share of successfully implemented public procurements, introduction of au-dits concerning the factual need thereof should be reconsidered, and should be

accompanied with relevant sanctions for commission members in the case of iden-tified subjective shortcomings.

PPL should stipulate a deadline for the ••decision-taking on the selection or the annulment of the public procurement procedure, which should start from the moment of public opening of bids — In the light of providing efficiency and ef-fectiveness of procedures, as well as in the light of avoiding to keep economic operators in suspense and release their tied finances, the deadline on decision-taking in public procurement procedures should be legally stipulated. Such dead-lines can vary depending on the proce-dure’s value or number of bidders partici-pating therein.

Contracting authorities should respect ••the legal obligation stipulating their obligation on submitting notifications with rationale to all bidders. In that context, the uniform template of the notification form with rationale could be stipulated and should include de-tailed overview of the bid-evaluation process and the decision taken. - This recommendation should apply to and be applied by contracting authorities in the

context of informing the public procure-ment participants on the decision taken for the selection of the best bid or when informing them on the procedure annul-ment. Such actions would provide better information on the fact why certain bids are rejected or have not been assessed as the most favourable one. If the report on the bid-assessment procedure cannot be forwarded to all parties concerned, then consideration should be made on stipulating the template of the notifica-tion that would provide details from the evaluation procedure.

The Methodology on Point-Based Rank-••ing Criteria, developed by the Ministry of Finance should be adequately amended, or the BPP should develop guidelines and recommendations on the criteria for selection of the most favourable bid – This should result in the elimination of common practices implying application of inappropriate criteria and evaluation elements and the non-unified criteria for the procurement of same goods applied by different contracting authorities. Such rules and recommendations should pro-vide for a more detailed point-allocation to criteria prone to subjective assess-ment and therefore decrease the subjec-tive assessment of bids.

ANNUAL REPORT 25

Certain criteria should not be subject of ••bid-assesment, but rather eligibility cri-teria for participation – This recommen-dation targets contracting authorities which should discontinue the practice of allocating points to criteria which could be deemed eligibility criteria or precondi-tion for participation of economic opera-tors (these include: reference list, war-ranty periods, delivery deadlines, etc.)

Contracting authorities should pay ••more attention and time to develop-ment of tender documents, notably the technical specifications, whereas the BPP should develop unified template for specific procurement-type forms – This recommendation applies to and should be applied by the contracting authorities, but the BPP can develop the standard-ized technical specifications for particu-lar procurement types for the purpose of unifying the description of such procure-ments, to the extent possible.

Contracting authorities should publish ••the tender documents on their website and on the website of the Electronic Public Procurement System – This rec-ommendation should be enforced by the contracting authorities, but should it fail to provide the relevant effects, it is

our suggestion that the legal obligation on the publication of tender documents on contracting authorities’ websites to be stipulated in the relevant legislation. This would result in shorter procedures, better insight and access to tender docu-ments for interested economic opera-tors, broader public, and also, for other contracting authorities.

To discontinue the common practice on ••imposing economic operators a charge for tender documents – This recommen-dation targets contracting authorities, but should it fail to provide the relevant effects, it is our suggestion the existing provision from PPL to be corresponding-ly amended and to include the stipulation of the upper threshold for charges to be imposed to economic operators for the tender documents.

To avoid setting the amount of bank ••guarantees at the maximum threshold of 3% from the procurement value – This recommendation should be applied by the contracting authorities. In the course of that, contracting authorities should avoid stipulating the bank guarantee as a formal requirement for participation in almost any possible public procurement procedure.

Contracting authorities should more of-••ten use the Electronic Public Procure-ment System, which enables application of basic principles underlying the public procurement procedures – The funds invested in the development and imple-mentation of the EPPS should be justified with the increased utilization rate there-of, which would contribute to effective use of the benefits offered by the said system, those being: speed, efficiency, transparency. At the same time, we reit-erate the legal obligation stipulating that in 2010 30% of funds planned for pub-lic procurements should be awarded by means of e-auctions (e-procurements).

BPP should undertake an analysis of ••the scope, legal justifiability, transpar-ency and competitiveness, and should it deem reasonable, should suggest lim-ited use of negotiation procedures, and exclude from this group certain non-priority services to which the public procurement rules can be applied - BPP should establish monitoring mechanism for negotiation procedures, whereas contracting authorities that implement them should report to the BPP on the procedure’s course, including the signed contract.

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BPP should be involved in the super-••vision of legal proceeding in public procurement procedures — BPP’s role should be enhanced with relevant pro-visions included in the PPL, that would authorize the Bureau to supervise the public procurement process, i.e., to issue binding opinions for contracting authori-ties. The BPP should also be authorized to issue measures concerning the discon-tinuation of procedures until the elimina-tion of identified shortcomings therein, including the decision-taking on the most favourable bid.

Rules should be adopted in the light ••of regulating the realization of signed public procurement contracts – Due to the identified legal gaps, many irregu-larities and abuses have been identified in this stage of public procurements. In that context, competences of contract-ing authorities should be stipulated and targeted to overcome the current (vague) competences concerning the supervision of public procurements, notably supervi-sion competences of the State Audit Of-fice and the Attorney General.

Special type of public procurement au-••dit should be stipulated in the legisla-tion – Such audits would be enforced by state auditors, which implies the need for specialized public procurement audit training for a number of state auditors.

Public prosecutors would also require relevant training and expertise in order to proceed in cases initiated as a result of these auditing reports, as well the re-cruitment of economists, accountants and other financial expert at public pros-ecution offices. All these would facilitate and speed up the proceeding upon SAO’s reports.

BPP’s reports on the public procure-••ment system should provide a more comprehensive analysis and relevant comments on all public procurement elements — Processing of data collected by BPP and presented in its annual and interim reports should not address only quantitative information (summary of statistics), but also analysis of the quality and implementation dynamics of public procurements. Therefore BPP’s reports should include analyses, assessments, comments, findings, conclusions and rec-ommendations related to the efficiency, cost-effectiveness and effectiveness of public procurements in the Republic of Macedonia.

Contracting authorities should secure a ••continuity in the work of persons trained in the filed of public procurements – Re-sponsible persons at contracting authori-ties should not discharge and replace the employees trained in the field of public procurements, especially those with long-term working experience in procurement

procedure implementation, i.e., persons who have specialized in this field.

The SCPPA should continue to publish ••on its website decisions taken in appeal procedures and provide detailed ration-ales thereof– This legal obligation, whose enforcement was discontinued by the SCPPA should be properly implemented, by means of publication of decisions tak-en after all SCPPA sessions held.

PPL should stipulate that the SCPPA ••should ex officio annul appealed proce-dures for which the contracting author-ity has not submitted the requested documents – The introduction of this pro-vision would “discipline” the contracting authorities that do not comply with the legally stipulated deadline for the sub-mission of all documents related to the appealed public procurement procedure and would therefore shift the burden of initiation from the plaintiff to the SCPPA which is in better position to monitor the deadline compliance by the concerned contracting authority.

DETAILED RECOMMENDTIONS AIMED TO IMPROVE THE PUBLIC PROCUREMENT SYSTEM