Author: George Mangion
Published on Malta Independent, 7th December, 2014
This article will reveal how hard SMEs try to win government tenders and, even when they fail, they persevere and toil to remain competitive and technically competent to do so. It goes without saying that prejudice against newcomers on the market is ingrained in the establishment which is traditionally cornered by established forms/consultancies. This reigns supreme (particularly for professional services) and many SMEs wait eternally in the queue to enter the Pearly Gates of accredited firms. New legislation proposed at EU level, overhauls the current public procurement rules and for the first time sets common standards on contracts to boost fair competition and ensure best value for money by introducing new award criteria that place more emphasis on environmental considerations, social aspects and innovation. It is hoped these rules will also make it easier for small and medium-sized firms to bid.
Typical case which occurred this month refers to an invitation to tender by WasteServ for the selection of an external auditor to provide audit services commencing this year and renewed subsequently for five years. The author, applying on behalf of PKF, has tendered and was the cheapest of the five bidders. The evaluation committee wrote to PKF informing it that the tender was cancelled on the grounds that: “The economic or technical parameters of the project have been fundamentally altered.” This is strange. WasteServ, as a government agency and a limited liability company, is bound to put out tenders for engaging an auditor to fulfil its statutory audit requirements. In fact, the Company’s Act Cap. 386 Laws of Malta: section 151. reads : “(1) A company shall, at each general meeting at which the annual accounts are laid, appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next general meeting at which such accounts are laid.” Also, section 179. (1) mandates that “company’s auditors shall make a report to the company’s members on all annual accounts of the company of which copies are to be laid before the company in a general meeting during their tenure of office”. Therefore, it follows that the external audit services which formed the subject of this tender concern a mandatory exercise and WasteServ cannot possibly rely on the pretext that economic or technical parameters, using its own terms, “have fundamentally altered”.
Furthermore, the management of all Maltese companies is obliged to prepare financial statements in adherence with the IFRS accounting framework. All companies are in turn bound to have statutory audits carried out in accordance with International Standards on Auditing (ISA). From this it follows that the parameters within which the statutory audits need to be carried out are clearly prescribed in the ISA and are confined to the latter. It is certainly an abuse of power to cancel the appointment of the bidder with full credentials as a qualified auditor who is also the cheapest than any other preferred bidder who may have bid a higher amount. Natural justice leads us to believe that transparency needs to be manifested and been seen to be applied in public procurement for professional services.
Then, it follows that “the economic or technical parameters of the project” of their intrinsic nature can have no opportunity for “fundamental alteration”, as has been suggested in the cancellation notice since the reason on which the recommendation for cancellation of this tender is based, in its totality lacks any empirical, statutory or other basis that, following defensible logic could ever render cancellation of such tender justified. Furthermore, the tender document clearly states that “the first audit shall be for the financial year ended 31 December 2013”. So logically it follows from the company Act 1995, which states inter aliathat directors appointed on WasteServ board shall deliver to the Registrar for registration a copy of the company’s annual accounts laid before the company in a general meeting in accordance with article 181 together with a copy of the auditors’ report thereon, and the directors’ report accompanying the annual accounts within forty two days from the end of the period for laying of annual accounts prescribed by article 182′.Readers may note that WasteServ is already seriously in default as it should have had its audited financial statements for year ending 31 December 2013 prepared by 31 October 2014.
Allow me to use a pun on the word serve. In my opinion, the agency is not serving its public obligations when it proceeded last week to cancel the above-captioned tender and, by choosing to do so, WasteServ continues to aggravate its tardiness in the failure to fulfil its statutory obligations under Maltese law. The case is currently under appeal to the Public Contracts Review Board (PCRB) but it is a sad reminder how SME’s fail to be protected from abuse of procurement laws. In the face of this, the rule of law will permit no ‘economic or technical parameters’ that may be conceived by the wildest stretch of the WasteServ’s imagination that will, as a result, directly and inextricably contribute to the aggravation of an already defaulting position in breach of the law by the same Authority. As PKF is the identified cheapest bidder in a public call for tender where the subject matter is the performance of a mandatory statutory audit, the purported cancellation of this tender also invariably, directly and inextricably causes the rights of PKF to be severely breached and prejudiced in what is being perceived to be a discriminatory action against the aggrieved bidder.
But the tale of not serving the public in terms of its obligation towards auditing has plagued WasteServ in the past under the previous administration. Then Opposition spokesman for the Environment Labour MP Leo Brincat (now himself minister responsible for WasteServ) had published a letter from its former auditors complaining to the ex-finance minister of having been berated by his former head of secretariat over their audit reports. It was the outgoing auditors who had in fact made reference to numerous shortcomings in their audit of the WasteServ accounts, especially an inadequate asset inventory that failed to reconcile a book value of €66 million with the original cost of €86 million. This allegedly prevented it from issuing an audit opinion on the existence and valuation of the six assets in question.
In another instance, it was the Auditor General (NAO) who commented unfavourably in a report entitled “An Analysis of WasteServ Malta Limited’s Procurement: A Case Study Perspective”. The main objective of this audit was to determine whether WasteServ Malta Limited (WSM) procurement practices were compliant with and adhered to pertinent public procurement regulations. No wonder that the Auditor General got hot under the collar. He reported misgivings on a randomly selected five case studies amounting to €34.32 million. In addition to the five case studies, NAO reviewed the appeals lodged by third parties in relation to WSM contracts with the Public Contracts Review Board (PCRB) during the period 2011-2012. One notes that discrepancies on appeals by aggrieved bidders may have been indicative of poor estimate compilation, with insufficient attention directed towards the sourcing of essential market intelligence. The case studies included the construction of a leisure area at the Marsaskala Family Park and the improvement undertaken with respect to millions invested in the Sant’ Antnin Waste Treatment Plant and Material Recycling Facility.
To conclude, one is disappointed to read in the NAO report that out of the 15 appeals lodged against WSM during the period 2011-2012, 10 of these objections were upheld by PCRB. In NAO’s opinion, this situation left much to be desired and one hopes that justice will prevail with WasteServ turning a new leaf in its relations with bidders. As always, the public expects to be served.
Author: George Mangion
Published on Malta Independent, 7th December, 2014
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