Business profits through abnormally low prices

Public procurement takes up to 30% of Kosovo’s annual budget. That is over 630 million euros per year. And even though the legal framework is in place, alongside the available regulatory bodies and even the electronic platform for procurement, that are all intended to enhance the transparency in public procurement, we are still seeing irregularities in the public procurement procedures. Economic operators are finding ways to impose higher prices in the bids. The Contracting Authorities (public institutions in this case) are finding ways to limit the competition or design tenders to fit only one firm.

Even though public institutions are increasingly using the e-procurement platform, which is designed with the purpose to ensure fair competition and transparent public procurement procedures, we can still see problems with public procurement in the field. The most common issue is offers with abnormally low prices. The lowest price is not always the best choice, because it can often turn out to be the deliberate strategy of an economic operator to manipulate the choice of the contracting authority. The most common issues that can occur if the contracting authority goes with the offer with the abnormally low price are additional charges or the increase of price, low quality of product or services, etc. Moreover, the annual procurement plan is crucial for responsible and transparent planning of spending public money, but again, in 2018, 499 contracts were signed despite the fact that were not planned by the procurement plan. What is even more interesting is that out of those 499 contracts, 72% were signed at the local level. And when it comes to small municipalities, the monitoring of their activities is often overlooked by Civil Society, and they tend to “make mistakes” in the procurement procedures more often. Those mistakes can range from improper planning of procurement activities, signing contracts without sufficient budget, awarding contracts to economic operators without carefully evaluating their offers, imposing criteria that are not in line with the nature of the project, etc. All of these mistakes happen in the field daily, and it costs money, the money of tax-paying citizens. For example, if the offer is not evaluated carefully, this kind of situation can occur: An institution opens a tender for coffee supply. Now, we all know that in Kosovo, the most popular coffee to drink is macchiato, a bit less popular is espresso, and then there are those least popular coffees like cappuccino, ice coffee, coffee latte, etc. If the contracting authority is not careful in drafting the tender dossier, and if the institution is not careful in evaluating the offers, and the economic operator can trick by offering the price for cappuccino, ice coffee, cafe latte and similar, for example, for the price 0.01€, while the price of macchiato and espresso could be up to 1€. This offer, at first sight, might seem attractive compared to other offers that stated realistic prices for those less popular coffees, but the reality is that the institution will end up spending much more money because people will order macchiato and espresso, and even if they order a cappuccino or any other coffee that was in the original offer, the chances are, the waiter will say that they currently do not have that coffee and will offer you macchiato or espresso. So, when the company gives the invoice to the institution, it will be much higher than expected. Now, this is just one simple example of how tender offers can be manipulated to extract more money. The Public Procurement Law allows the contracting authority to ask for additional information if the offered prices are abnormally low. The problem is that, in most of the cases, the evaluating committee does not see it, or they just ignore them. The biggest problem with this is that abnormally low prices destroy the competition, and one of the main purposes of public procurement is to allow for fair competition.

In order to avoid mistakes during the entire process of public procurement, starting from drafting the call for tenders, all the way to signing the contract with a company, the institutions must be extra careful. Procurement officials must take additional pieces of training and other capacity-building programs in order to be able to perform their duties best they can. On the other side, the Civil Society must continuously monitor the institutions to “catch” the irregularities, point them to the public, as well as the relevant regulatory bodies. The citizens must also take a more active role in the decision-making processes, to hold their institutions more accountable for spending the money of Kosovo taxpayers.