Reform of public spending processes is slow

The public waits too long and pays too much because of faulty bidding for roads, schools and other big projects.

Foto: CIN

Three years after a new law was supposed to start cleaning up, conserving and opening the way citizens’ tax money is spent, public procurement in Bosnia and Herzegovina (BiH) remains riddled with obstructionism, delay, and favoritism.

Officials maintain they can see progress, but the pace has been disappointing considering that procurement reform has had at least as high a priority in BiH as judiciary and police reform. The European Union (EU) ranked it so important that in 2004 a new Law on Public Procurement set up a way to unify the divided BiH market and to insure fair treatment of businesses seeking government money.

The law demanded that two state agencies be put into place within three months. That deadline was ignored and three years later, those bodies are just starting up. Dženita Fočo, head of the new Procurement Agency, said the original deadline was unrealistic and meant just to pressure everyone involved into working harder.

The agency is supposed to follow implementation of the law on public spending and bidding while a Procurement Review Board is charged with investigating complaints from bidders who allege mistakes or wrongdoing in the tender process.

However, the advent of the two organizations still doesn’t address every issue. For instance, neither of these two organizations claim any mandate to act in cases of wrongdoing after a bid has been awarded.

Slow start against corruption

Contracting is frequently rife with corruption because of the sums involved. A 2004 analysis by an EU program on public procurement here found that BiH spends between 600 and 800 million KM annually on public goods and projects.

A road construction project near Sarajevo is part of 600 and 800 million KM spent annually on public goods and projects in BiH. This money goes through a procurement process that is still susceptible to corruption, experts say.

If 90 percent of all contracts were perfect and only 10 percent involved such foul play as bid-fixing or favoritism, taxpayers could be losing 60-80 million KM a year, said Blago Bošnjak, briefly a member of the Procurement Review Board. In addition, because government is the biggest investor and purchaser operating in BiH, its contracts can mean life or death for struggling new private businesses.

Transparency International (TI), a non-governmental organization that advocates against corruption, warns that public spending and corruption go together because public officials often are appointed because of their ties to political parties. Then, said Srđan Blagovčanin, BiH spokesman for the group, they end up with ‘the possibility to produce this money for debts to parties.’

Nevertheless, the BiH Parliament did not rush in appointing members to the two bodies. It took about a year to appoint the director of the agency and five members of the appeals board.

The Procurement Agency sputtered into operation finally in June then in six months amassed 1,000 requests for opinions.

The review board had an even rockier start. The board put together by the end of 2006 fell apart in May with the abrupt resignation of three members. They cited personal reasons and in interviews with the Center for Investigative Reporting in Sarajevo (CIN) pointed out that the board wasn’t doing anything and didn’t even have an office.

Amir Pilav, the head of the board, blamed the defections on bureaucratic delay. Even after members were named, Parliament didn’t fix their salaries so they couldn’t sign contracts until May.

Some 464 complaints went untouched during the time the board was in disarray and are still in the backlog. Since its start on September 19, the board received additional 196 complaints of which it solved 136 by the end of the year, an indication of the work to be done.

Marian Lemke, team leader of the EU program in BiH, said, ‘the delay in the establishment of those two institutions is a serious problem.’

Fočo downplays that, saying that the 10 new members of the EU from 2004 needed three years after they passed similar laws to reduce a torrent of complaints about bidding to a trickle.

To keep to that timetable BiH officials would still have a lot of work to do this year.

Bid problems come to light

TI, the EU and the new public procurement bureaucracy of BiH are starting to get a clear picture of how big public work projects are mishandled.

Most of the 17 complaints TI has gotten about bidding in the past two years have been about additions called annexes made to contracts after they were awarded. In this way low bidders wind up collecting more public money than they originally asked for.

Construction of part of the highway from Gradiška to Banja Luka is an example.

The new public procurement bureaucracy of BiH is starting to get a clear picture of how big public work projects such as road work are mishandled.

In late 2002 the RS government signed a contract with Integral Inženjering to do the work for 43.5 million KM but that contract failed to account for required measures under a new Law on Environmental Protection.

In addition, municipal officials, citizens and environmental groups protested against the digging of a tunnel some 200 meters from a kindergarten.

The European Bank for Reconstruction and Development which was donating money for the rest of the project has strict environmental criteria and so everything stalled until 2004. Then, in September of 2006 according to Natalija Popadić of Putevi RS, which took over as a contracting party, a 65 million KM annex was added without a bid. The cost of the project now stands at 100 million KM.

TI has also gotten complaints about splitting big projects into multiple tenders, each for small enough amounts so that officials can avoid obligatory procedures required for big expenditures.

Bidding complaints

TI has also heard complaints about bids worded so precisely they are tailored for only one vendor. Thus suppliers complain that competitors are favored in bidding, even though everything is apparently legal.

Frequently businesses that do work with a government agency continue to get additional bids simply because they get extra credit for having experience.

Some suppliers simply give up trying for bids figuring why spend time and money bidding when it’s hopeless?

A tender officer for Hyundai Auto BH said requestors frequently ask the firm to submit bids, but only because the law requires that they collect three bids before making an award. They frequently already have the bid winner picked out and advertise it in the specifics of what they are asking for. For example, they will call for car dimensions or engine specs like 130 horsepower or for details such as a six-speed transmission that only fit one brand.

Other bidding problems

While agency officials and the EU speak of the law integrating the market in BIH, it remains rare to find companies based in one entity sending bids for calls taking place in the other entity.

Fočo said most of the problems her agency has spotted have to do with faulty bid notices, but she didn’t want to reveal them. She said she was hoping to work with ministries of justice, courts and tax authorities to simplify and clarify bid-taking.

Lemke of EU said that a recent survey of 400 business and government people involved on both sides of public spending showed dissatisfaction with how little explanation businesses get for why their tenders are rejected or chosen.