Controlling Public Spending

BiH made a start toward responsible spending by government agencies with passage of a law in 2004. But years later, the awarding of tenders is still far from a logical and fair competition that gets taxpayers the best price.

Photo: CIN

The passage in 2004 of a new Law on Public Procurement, modeled after the work of European experts, has not cleared up favoritism, errors, and corruption in the award of contracts for public works, services and goods in Bosnia and Herzegovina (BiH).

At stake in the purchasing practices of government agencies is at least 1.2 billion KM a year in taxpayer money.

Of 23 audits completed by the Federation of BiH (FBiH) government’s ministries and parliament in 2007, all but seven blasted officials for violating a law meant to insure that taxpayers’ money is handed out frugally. Republika Srpska (RS) auditors sampled the procurements of some 18 bodies audited and found multiple problems. In three agencies they found legal violations.

Overall, ministries wrote tender requests either so specific or so vague they inhibited competition and made excessive payments for goods and services. ‘It is known in advance what should be written in a tender in order for some of the chosen to win’ said Federation Chief Auditor Ibrahim Okanović.

For example, the Federation Ministry of Veteran Affairs improperly put out a bid for a 68,000 KM car specifying what officials wanted so minutely that only one model of Audi fit.

Ministries frequently didn’t publicize tender awards or wait 15 days between announcing and signing contracts, practices that allow for complaints and insure fair play. They didn’t keep minutes, which help to make decision-making transparent.

Some of the abuses auditors found would be laughable but for the sums involved.

The FBiH Ministry of Finance sent a 103,650 KM order to Jelić Auto of Mostar a day before signing a contract with the company, without waiting the required 15 days and without ever publicizing the award, which is also required. As early as the Ministry’s order was, the company still took nearly three months- until late March- to deliver the cars. This was particularly odd because a prime reason it won the contract was its promise of prompt delivery within three days of payment.

Former RS Finance Minister Svetlana Cenić described such circumventions of the law as common ‘A supplier with special treatment gets a tip to get a vehicle and then they put in the tender that ‘instant” delivery is worth a certain amount of points.’

The RS Ministry of Justice picked the lowest bidder to supply meat products to East Sarajevo Prison, but soon after signing the contract agreed to an annex that lifted the firm’s prices above those of all other bidders.

The FBiH Ministry of Internal Affairs wrote a deficient tender request for oil that did not lock down acceptable terms for price hikes. It spent 283,000 KM during 2006, but auditors cannot determine if the government was gouged by suppliers.

The Ministry for Urban Planning was so eager to bring in Agermeier Engineering of Germany to take a series of digital photos around the FBiH for use in developing a 20-year growth strategy that it signed a contract for nearly €1.3 million just seven days after announcing it had selected the outfit. At the same time the firm sent in a bill for a 20 percent advance payment.

But only 500,000 KM was budgeted for the project, less than even the advance payment. The Ministry said they would pay the rest later. Two bidders who had kept to the budget and lost the contract complained, but the ministry rejected their claims within a day. One bidder then pressed the issue and the Procurement Review Body halted the contract process. Still, at this point the contact had been signed and a partial payment made.

How bad is it?

Even critical assessments allow that the 2004 law has helped to cut down on waste and corruption. It just hasn’t gone far enough.

The Center for Investigative Reporting in Sarajevo (CIN) examined tenders, audits, contracts and court files around the country and found an array of problems:

Tender commissions tend to be open to influence and play favorites in the suppliers they contract with.

Legal assurances that only law-abiding, tax-paying businessmen get public dollars are overlooked.

Businesses that believe they have been treated unfairly when trying to get government work have little recourse except for courts, which act slowly, if at all.

Businesses that perform poorly or don’t complete public work contracts not only are rarely punished, they are allowed to continue bidding for new jobs.

Officials pick the low bidders in many cases, but then allow numerous annexes that bidders submit to inflate their final price.

Sadik Bahtić, president of a Finance and Budget Commission of the BiH Parliament, said the existing law is weak, especially on penalties for violators, and there are too many ways to get around it to fix a bid. Lazar Prodanović, the RS member of the Commission, agreed.

‘Now, there is a big possibility of abuse even when the procedure based on the Law on Public Procurement is followed’ he said.

Problems arose soon after the law was passed, while Parliament tarried for almost two years before the two agencies meant to implement the law and listen to grievances began working.

A European Union review of public procurement last summer found fault with both those agencies, including lack of expertise and ineffectiveness. It called for ‘urgent government action’ to correct these.

But the government has not acted urgently.

For example, Amir Pilav, head of the Procurement Review Body that hears complaints about procurement, said he still works without a rulebook.

‘By the law, we make it and send to BiH Council of Ministers for approval. But before the rulebook is sent to the Council of Ministers, it first has to be approved by the Ministry of Finances and Treasury, the Legislation Office and Ministry of Justice. They have to pass their opinions. We did that a long time ago, but the problem arose when the Ministry of Justice requested that the director of the complaints office should be appointed by the Council of Ministers and not office members, as it is stated in the law’ Pilav said.

Prodanović has a solution, he said. The Council should appoint a leader and assign two deputies, keeping national parity in mind. Bahtić agrees. Asked it that meant politicians would be able to influence the decisions made by the office, Bahtić said: ‘Well, yes, it is possible; decisions can be influenced by politics.’

For the past 18 months, Parliament has been considering amendments to the public procurement law. Members blame the delay on SNSD.

Prodanović said, ‘As far as SNSD is concerned, the law did not get support. We think that BiH needs a new law.’

Most of the changes the party wants are political. One would allow advertising of bids in entity gazettes rather than only in the Official Gazette of BiH.

After reviewing the yearly report from the complaints office, and frustrated by the inability to agree to changes in the law, the BiH Parliament asked the BiH Council of Ministers to draft a new procurement law in 90 days.