Suspicious Procurements of the Covid-19 Period

News | Good Governance | Pressing Issues | Analysis | Article 1 February 2021

Since the declaration of the state of emergency due to the spread of coronavirus infection in Georgia, the Institute for Development of Freedom of Information (IDFI) has published three studies on public procurements pertaining to the fight against infection. Each study included an analysis of systemic or specific problems and recommendations to address them. Due to the thematic directions of these studies, they did not include some of the public procurements with questionable circumstances, which are instead presented in the present study.

 

Bathrooms of Schools and Kindergartens Renovated During the Pandemic

 

Between July 22 to September 30, 2020, due to urgent necessity, 41 municipalities procured bathroom-related materials and services for 241 schools and 16 municipalities procured the same for 133 kindergartens through simplified procurement. The urgent necessity was often justified by the observance of appropriate hygienic conditions to prevent the spread of COVID-19.

 

The number of simplified contracts concluded for this purpose is 235, and the total value is GEL 11,662,116.91. Among these funds, GEL 9,655,346.44 was allocated for schools and the rest for kindergarten contracts. Tskaltubo Municipality used the largest amount of funds, GEL 1,120,452.03, for its schools.

 

Per the January 9, 2020, Decree of the Government of Georgia, 57 municipalities were allocated targeted transfers for the improvement of school infrastructure for the exercise of delegated authority to procure goods and services. The proliferation of COVID-19 changed priorities, however, and municipalities were recommended to renovate only the sanitation facilities in the public schools. Additionally, by the June 11, 2020, Decree of the Government of Georgia N947, municipalities were granted the right to purchase design-planning services for bathrooms through simplified procurements, while the June 12, 2020, Decree of the Government of Georgia N973 rescinded the limits defined for the municipalities, and the municipal governments were given the right to purchase the goods or services pertaining to the organization-renovation of bathrooms based on factual need.

 

The priority of observing hygiene and sanitary norms in the conditions of the pandemic was named one of the possible reasons for urgent necessity. This issue and the massive number of purchases indicate that, prior to the pandemic, compliance with hygiene and sanitation norms in schools was not sufficiently observed and was not considered a priority. The crisis showed that a large number of schools and kindergartens were not equipped for this kind of challenge, and in the previous school year a certain number of children had to attend a school or kindergarten where the bathrooms did not meet the minimum standards.

 

At the same time, how conscientiously these funds were distributed through simplified agreements is an important consideration.

 

Procurements of Tsalenjikha Municipality

 

Among the procurements of renovations for kindergartens and schools by Tsalenjikha Municipality, 3 contracts were signed with Oder Arkania, who received a total of GEL 67,000. Oder Arkania is the father of Lasha Arkania, the head of the Tsalenjikha Municipality mayoral administration. He has been accepting simplified procurement contracts for construction work since 2013.

 

2 contracts of Tsalenjikha Municipality were signed for Mshenjgupi 777 Ltd, with a total value of up to 41,000 GEL. The company was founded on September 10, 2020, while these contracts were uploaded to the public procurement system on October 1. The same company won a non-competitive tender worth more than GEL 16,000 in November 2020; therefore, the estimated value set by the buyer has not changed. Dimitri Shelia owns 50% share of the company. He is additionally registered as an individual entrepreneur, and in 2014-2015 he also received simplified procurement contracts from Tsalenjikha Municipality for vehicle repair services. Shelia is a business partner of Temur Gvinjilia, Chairman of Tsalenjikha Municipality Council, in She-Li Ltd, which is also indicated in Gvinjilia's declaration. This company has received one simplified purchase agreement in 2012; since then, it has not been registered in the electronic system.

 

Two contracts worth up to GEL 23,000 were signed with Giga Pipia, which is also recorded in the financial statement of the Georgian Dream Election Campaign Fund for the period of 13.10-31.10.2020. He was paid 510 GEL, but it is unknown what services he provided to Georgian Dream.

 

The Case of Marneuli and Akhalkalaki Municipalities

 

On August 6, 2020, the Marneuli Municipality self-governing body signed a simplified procurement contract for the activities related to the renovation and equipment of a bathroom at the Public School N2 in the village of Tazakendi with individual entrepreneur Asrad Musaev. The value of the contract exceeded GEL 30,000. Since 2017, Musaev has often received simplified procurement contracts, mainly from Marneuli Municipality. The 2017 financial statement of the Georgian Dream Election Campaign Fund for the period 01.01-31.12.2017 shows the remuneration paid to Musaev in the amount of GEL 313. As in the case of Pipia, it is unknown what services Musaev provided to the Georgian Dream in this instance.

 

Identical circumstances were revealed in the case of Akhalkalaki Municipality, which signed a simplified procurement contract for the rehabilitation of the public school in the village of Kotelia with individual entrepreneur Mamikon Hovhannisyan. The cost of the contract exceeded GEL 63,000. According to the financial declaration of the Georgian Dream's 2017 election campaign, Hovhannisyan has received GEL 312.5 as compensation from Georgian Dream.

 

The Case of Akhmeta Municipality

 

The Akhmeta Municipality City Hall signed a simplified procurement contract worth up to GEL 34,000 with Megaron Ltd for the renovation of the bathrooms of №2 and №3 kindergartens in the village of Zemo Alvani. Zurab Kapianidze is the director of the company. His wife, Olia Khokhobashvili, is the head of one of the services of Akhmeta City Hall. According to his 2014 declaration, Kapianidze was the chairman of the “Akhmeteli” faction of the Akhmeta City Council, while his son, Beka Kapianidze, headed the logistics and monitoring team of the Georgian Dream election headquarters within the same period.

 

 

Kapianidze is also an independent entrepreneur and actively received simplified procurement contracts from Akhmeta Municipality in 2014-2015. Megaron Ltd has received more than GEL 123,000 through simplified procurements in 2019-2020, and Akhmeta Municipality was the buyer in all cases.

 

IndividualEntrepreneur Zaza Prokopenko

 

On June 5, 2020, the Zugdidi Municipality City Hall addressed the Procurement Agency with the intention of agreeing on a procurement based on urgent need. COVID-19 was the cause for the urgent necessity, and within the framework of the mentioned procurement, citizens who had undergone mandatory isolation procedures were relocated from the Anaklia-Ganmukhuri quarantine zone to their residences. The contract worth GEL 10,000 was signed with the individual entrepreneur Khuta Prokopenko, who is the father of Zaza Prokopenko, the chairman of the Zugdidi City Council faction “Georgian Dream-Democratic Georgia”. The appendix to the inspection report of the contract signed with Khuta Prokopenko by the Zugdidi City Hall on April 13, 2020, indicates the specific vehicles and their drivers who performed services within its framework. Among these drivers, Zaza Prokopenko appears the most frequently.

 

 

Interestingly, according to Zaza Prokopenko's declaration, he owns a Mercedes-Benz Sprinter car:

 

 

At the same time, he himself is registered as an individual entrepreneur. In the first declaration filed in 2018, the graph of entrepreneurial activity indicating the individual entrepreneurship and enterprise capital is set at $13,000, which exactly matches the value of the vehicle in his ownership.

 

 

 

The same entry can no longer be found in the declaration filed in 2019, although the other income column shows income from entrepreneurial activity in December 2017, despite the fact that the declaration must describe the situation as of 2018:

 

 

Interestingly, the deputy chairman of the Georgian Dream faction of the City Council receives the income from state tenders together with his father. In 2019, he received a transport service contract worth GEL 2,400 from one of the public schools in Zugdidi, in 2018 he received a total of GEL 800 through simplified procurements, and in 2017 - 2,870.

 

It was in 2019 that Zaza Prokopenko's simplified procurement receipt of the delivery document reveals that the license plates of the car he owns match the license plates indicated by Khuta Prokopenko in the COVID-19 procurement receipt of delivery acts, which proves that he provided the relevant services and was the recipient of the corresponding remuneration.

 

Although a member of the City Council is not prohibited from engaging in entrepreneurial activity, the receipt of large sums of money from the state budget through direct sales by the Deputy Chairman and his family member raises a number of questions, such as whether it is related to their influence of office and relevant contacts, and how fairly their services are selected with no tender in place.

 

“Luka 2005” Ltd

 

JSC National Center for Tuberculosis and Lung Diseases, after terminating the contract with the supplier selected by electronic tender, purchased good amounting to GEL 5,773 in simplified procurements on March 25 in order to feed the persons in their quarantine area. The recipient of the contract was the company “Luka 2005” Ltd, founded in July 2019. In 2020, it has received 5 contracts through simplified procurement, the total value of which is GEL 285,000; all of these contracts are related to food supply services. In the case of three contracts, the procuring authority is the State Food Security, in one - the Nadzaladevi District Board, and in one - the National Center for Tuberculosis and Lung Diseases.

 

Iasha Chachua owns 100% share of the company, while Nukri Meparishvili is the director. Both of them donated GEL 60,000 and GEL 10,000 respectively to Salome Zurabishvili on December 14, 2018."Luka 2005", however, is not the only company of Chachua, as he owns shares in 6 other companies, with the rest of the shareholders being:

 

- Yuza Joglidze, who donated GEL 15,000 to Salome Zurabishvili, and later GEL 60,000 to the ruling party before the 2020 parliamentary elections.

 

- Lasha Ughrelidze, who donated GEL 60,000 to Salome Zurabishvili, and donated GEL 50,000 to the Georgian Dream in October 2020.

 

- Giorgi Ughrelidze – donated GEL 10,000 to Salome Zurabishvili’s presidential campaign.

 

- Dato Gagua (partner until December 2019) - donated GEL 60,000 to Salome Zurabishvili's presidential campaign. In total, Iasha Chachua and his business partners have donated 325,000 GEL to the Georgian Dream.

 

One of the companies of Chachua and his partners, Ili Group Ltd, has won electronic tenders amounting to over GEL 92 million without competition between 2018 and 2020. Tenders won by them often lead to complaints from other companies arguing that the terms of the tender are tailored to a single buyer. For example, one of the acquisitions was initially won by another company, but it was later disqualified due to technical documentation, after which Ili Group was declared the winner. 3 complaints have been submitted pertaining to this procurement.

 

Jibe Ltd

 

On May 15, the Ministry of Health and Social Affairs of the Autonomous Republic of Adjara signed 7 agreements with a total value of up to GEL 730,000, with the aim of providing a "food basket" for the socially vulnerable population during the coronavirus pandemic. The Ministry paid more than GEL 214,000 out of the mentioned funds to "Jibe" Ltd. This company is related to the system of purchase and further sale of products from farmers during the strict quarantine in Shida Kartli enacted in the beginning of April. Following the closure of agrarian markets, three outlets were identified on the basis of the same company to which the retail stores were to supply the product.

 

It should be noted that Giorgi Berianidze, the director of one of the joint-stock companies, Ponto Holding, the owner of Jibe Ltd, is a donor of Georgian Dream. He donated GEL 10,000 to the ruling party in 2017.

 

In total, the company received more than GEL 1 million during the pandemic period, between March and December 2020, through simplified procurement contracts. For the sake of comparison, the same company received simplified procurement contracts amounting to GEL 30,857 throughout the entirety of 2019 and the period in 2020 prior to March 31.

 

GEONET EXPO

 

 

The Ministry of Internally Displaced Persons from the Occupied Territories, Health and Social Affairs of Georgia signed a simplified procurement agreement with GEONET EXPO Ltd on May 11. Under the terms of the contract, GEONET EXPO Ltd was to supply 63,000 pieces of surgical gowns to the Ministry of Health at a total cost of GEL 497,700 (unit cost GEL 7.90). This is the latest public procurement agreement of the company.

 

As seen in the company's charter, its sphere of activity does not include medical devices.

 

 

The documents uploaded in the electronic procurement system reveal that GEONET EXPO Ltd was fined twice for failing to meet the delivery deadline, which constituted 1 day in the first stage and 9 days in the second stage, based on the inspection report carried out twice by the Ministry. The company was fined a total of up to GEL 400.

 

As for other public procurement contracts received by the company, GEONET EXPO has received a total of 40 simplified procurement contracts since 2012, with a total value of GEL 59,304.48, and the objects of procurement were as follows: 

 

 

The company won the e-tenders twice, with the total value of the contracts amounting to GEL 31,940. Interestingly, in both cases the buyer was the non-profit (non-commercial) legal entity Agroservice Center of the Ministry of Agriculture of Adjara AR, and in both cases the buyer terminated the contract with the company due to non-fulfillment of obligations and imposed appropriate fines.

 

Additionally, none of the procurement objects in the public procurement system belonged to the category of medical devices. Therefore, it is unclear on what basis was this company selected by the Ministry.

 

Conclusion

 

The circumstances revealed over the course of the study indicate that simplified procurement agreements made during the pandemic were in some cases formed with inexperienced or ruling party-affiliated companies. The cases of Tsalenjikha and Zugdidi have made it clear that simplified procurements in municipalities are oftentimes used to sign contracts for officials or their family members and business partners. It is important to be transparent in the supplier selection process when making simplified procurements, as this would ensure competitive selection of suppliers.

 

Additionally, the need for emergency repairs to schools and kindergartens due to the pandemic may indicate that hygienic standards in municipal educational institutions are not ensured, and the problem requires a systemic approach for proper resolution.

 

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This publication has been produced with the assistance of the European Union. Its contents are the sole responsibility of the Institute for Development of Freedom of Information (IDFI) and do not necessarily reflect the views of the European Union.

 

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