In June of 2018, IDFI published a study on the expenditure of the Contingency Fund of the Government of Georgia (CFGOG). One of the key issues identified was the lack of transparent procurement and the risk of inefficient disposal of funds, which is due to the fact that the public procurement law does not apply to funds allocated from the contingency fund - it is not mandatory to announce competitive tenders and publish contracts.

Within the scope of the research, we scrutinized every state agency that received funding from the CFGOG for procurements which could not be considered force majeure. Our attention was drawn to one of the procurements conducted by the Ministry of Foreign Affairs of Georgia.

Procurement of the Ministry of Foreign Affairs of Georgia

In 2017, the Government of Georgia granted the Ministry of Foreign Affairs 737,000 GEL (Ordinance N1616, 03.08.17) with the right to use the funds for procuring services related to project design, expertise and sustainability research of building located at Leonidze str. #3.

The Ministry did not announce an electronic tender for implementation of the works related to this building - such tender cannot be found on the public procurement portal (portal). Furthermore, procurement information and the agreement were not published on the portal, not even in the direct procurement module database of the portal (see photo # 1).

Photo # 1 – Direct purchases made by the Ministry of Foreign Affairs in 2017 exceeding 200,000 GEL

Since we failed to find the contract on the state procurement portal, we requested information from the Ministry of Foreign Affairs. The Ministry provided us with a copy of the procurement agreement. According to the agreement, the agreement on architectural and related services was signed on August 4, 2017 (1 day after the transfer of funds was approved from the CFGOG).

The contract was signed with "Land Mark Project" LLC (ID: 405221843). According to the agreement, the company is obliged to perform "adaptation-change and create a new design for the immovable monument of the cultural heritage existing on the plot of land [Leonidze str. building on N3] ". The Ministry of Foreign Affairs paid 721,954 GEL (including VAT) to the company for the work (see photo # 2). According to the agreement, the work comprised 4 stages and should have been completed on October 10, 2017.

Photo # 2 - Agreement between the Ministry of Foreign Affairs and the Company "Land Mark Project"

The term of validity of the contract was changed twice: 1) Annex of 10 October 2017, the deadline for the completion of work was extended until October 20; 2) Annex of 1 November 2017 – extended until March 10, 2018.

Contract Implementation

According to the act of delivery and acceptance, "Landmark Project" fulfilled the duties foreseen under the 3 stages, for which the total sum was 718,354 GEL. The remaining amount (3600 GEL) will be transferred to the company after the commitment of the fourth stage - supervision of construction works is completed.

According to the amendments to the agreement, LEPL "Levan Samkharauli National Forensics Bureau" identified flaws in the works performed under the first and second stages, and the company was obliged to fix the errors (see photo # 3).

Photo # 3 - Changes to the Agreement

In the end, the Ministry of Foreign Affairs signed the final act of delivery and acceptance on June 1, 2018, hence the company fulfilled the Works with a delay of 8 months.

Was the Law on Public Procurement Violated ?

Under Article 3(e) of the Law on Public Procurement - "public procurement to be performed with funds allocated from the contingency funds of the President of Georgia, the Government of Georgia and the Tbilisi City Hall” are exempt from the law. Since the money was allocated from the CFGOG, the Ministry of Foreign Affairs was not obliged to announce the electronic tender/competition.

The Ministry of Foreign Affairs did not break the law, however, the state agencies may use competitive procedures provided by the law, regardless of their obligations. Such practice exists, including within the Ministry of Foreign Affairs itself. Even though the law has not been violated, this procurement contains some suspicious circumstances.

Suspicious Circumstances

The contract concluded with the company "Land Mark Project" has a number of risks/"Red flags", related to public procurement. these are:

1. Lack of Competition— [+]

The Ministry of Foreign Affairs signed a contract directly with "Land Mark Project" LLC. An electronic tender cannot be found on the the state procurement database. Furhtermore, the contract concluded is also not available on the direct procurement contracts database. Consequently, this particular purchase was made without competition

2. The winning company is registered shortly before the purchase— [+]

According to the Public Registry, "Land Mark Project" was registered on August 3, 2017, on the same day when the Ministry of Foreign Affairs received the confirmation that the funds would be transferred from the CFGOG and 1 day prior to the signing of the contract (see photo # 4).

Photo # 4 - Extract of  "Land Mark Project" from Public Registry

3. The company owner(s) is/are related to the employee(s) within the procuring entity— [+]

100% of the company’s shares is owned by Avtandil Makharoblishvili, who is the brother of Vakhtang Makharoblishvili, deputy foreign ministr. Vakhtang Makharoblishvili was appointed Deputy Foreign Minister on November 27, 2016.

4. Direct contract is usually signed with the same company and / or the company does not participate in any other similar (the same type of goods, services or work) procurement— [+]

"Landmark Project" LLC cannot be found on the state procurement database. Accordingly, the company has never participated in a competitive tender. The company has not received direct contracts from any purchaser. We could not find information indicating that the Ministry had signed other contracts with the company beyond the public procurement system. It should be noted that the company does not have a website, a social media page, cannot be found on popular business platforms such as "BIA". Consequently, information about the company's activity portfolio is not available neither on the public procurement portal nor on the internet.

Conclusion

Procurement conducted by the Ministry of Foreign Affairs of Georgia on services related to project design, expertise and sustainability research of building located at Leonidze str. #3 contains risks that make this procurement suspicious.

1. Electronic tender/competition on the purchase of the service was not announced;

2. The contract concluded is not uploaded on the state public procurement database;

3. The contract was signed with the company established 1 day prior to the signing of the contract;

4. The owner of the company and the deputy minister of the procuring agency are related (brothers);

5. The company has not participated in other procurement opportunities within one year from signing the contract.

The circumstances listed above constitute solid grounds for suspicions that the high officials of the Foreign Ministry used the funding from the government contingency fund to sign a direct contract with the company established by the deputy minister's brother, a day before the contract was signed. We believe that the State Audit Office should be interested in these suspicious circumstances and the Ministry of Foreign Affairs should clarify its decision.

The research once again demonstrates why the public procurement law should cover procurement conducted with the funds provided from the CFGOG - to ensure transparency, competitive environment and prevention of suspicious transactions.