Information that HUP is initiating the reform of the Public Procurement System is untrue, incorrect and harmful for public interest
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On 26 February the Croatian Employer’s Association (HUP) announced its proposals of intervention in the public procurement system of the Republic of Croatia, by which the PR campaign of HUP started so that they could achieve benefits for their members in the new amendments of the Public Procurement Act of Croatia. Shortly after the announcement, in the media on 29 March, 2016 news broke that HUP initiated the “reform of the public procurement system”, news which was transmitted by HINA (Croatian News Agency), HRT (Croatian radio-television) and all other media and portals that deal with economic and political issues (including the major publishers such as Styria group and EPH). In the day that followed the published news, a fierce lobbying campaign continued, by which the public was convinced that the leadership of HUP is advocating the reform of the public procurement system, which is as they state a “disaster”. The whole process and procedure of HUP and the media in this situation led to the exact example of how the legislative process is being manipulated in corrupted societies. First of all, the information that HUP is initiating the reform of the public procurement system is untrue, incorrect and by that very harmful for public interest, which was easy to determine had someone wanted to verify the above-mentioned.

HUP didn’t initiate any “reform” of the public procurement system, nor was the “reform” as such foreseen, if by reform we mean a change of the system from the ground up. After several days of consultations with the key actors, we determined that the process of amendments of the Public Procurement Act in the Republic of Croatia was initiated by the Ministry of Economy in the second month of this year based on the obligation of Croatia to implement the new EU directive. This obligation applies to all member states of the EU, not only the Republic of Croatia, and judging by the requirements, believe it or not, the blind application of the directive in Croatia would lead to the deterioration of the public procurement system in the sense of corruption (it would become less competitive and less transparent) compared to today. Had all the media that published this “news” been interested, i.e. had they critically referred on their owners and key advertisers who are sitting in HUP, surely the publishing of false news as exclusive would’ve been avoided.

So, it is true that with the enforcement of the new EU directives (April 2014) the obligation did exist for implementing the directives into the national legislation. The deadlines are the usual (2 years from the day of issuing, with possible exceptions). The previous government, even though knowing about this obligation, didn’t start the regular procedure of public consultations on the amendments of the Public Procurement Act and now we’ve found ourselves under the pressure of the EU to transfer the directives into the national legislation, with almost impossible deadlines and certainly insufficient for high-quality public discussion. Therefore, the call to certain groups for expressing interest, i.e. proposals and by that itself the initiative, came from the Ministry, not from HUP or any other association or chamber.

Thereby, it should be known (PSD participated in the making of the Public Procurement Act, which was adopted in 2011 and enforced in 2012) that the EU directive is a minimal standard. So, at the moment it was passed, the Public Procurement Act of the Republic of Croatia was the most advanced suchlike instrument in Europe including in regards to all of the member states of the EU at the time. In their making, the EU directives which followed (PSD participated in the regular communication and consultations with the EU authorities at the time of their issuing, which was also easy to verify) also greatly relied on the solutions which were designed for the first time in the Act of Croatia of the period, such as controlling contract execution. However, the EU directives didn’t receive their expected acuity, considering that member states which don’t have regulated public procurement systems, such as Germany, greatly resisted the regulation of the system, i.e. the increase of the transparency of their system, because in such a way they protected their internal economic and political interests. Hence, in the sense of developing the public procurement system, including transparency, Croatia is far ahead of the most developed EU countries. Since the directive has to meet the average, a “blind” transfer of the EU directives would significantly distort the level of transparency of the system achieved, despite the fact that by the interventions into the Act during the previous coalition government the Act was damaged (such as the adoption of the Utility Management Act which seriously interferes into the public procurement system, i.e. it allows avoidance).

On the other hand, it’s important for the public to also know what HUP is proposing and in what way. By completely inexpert comments and interpretation of statistics without understanding the individual data, such as “that the participation of the tenderers amounts to 3,2 tenderers per tender” even though the tender and competition are totally different categories in public procurement and in no way should those two terms be mixed, HUP is literally leading the public into fallacy. In its introduction, HUP’s document refers on the documents and researches conducted by different actors including the EU Commission, but it proposes solutions to the problems in a way as to completely destroy any standard in public procurement of the republic of Croatia, i.e. to customise the procurement for the strongest actors and thus ensure that the procurement replaces the subsidies and state aid which they’ve been abundantly receiving up until now.

In a sea of proposals (which are generally only citations of general proposals of various actors in the EU Commission), HUP hid a drop or two of significance to them, therefore it is offering us, as said in the internal jargon, a “locked” framework agreement. The locked framework agreement that HUP explains by the proposals of the EU Commission, once again arbitrarily interpreting them and not understanding the specifics of corruption and problems of public procurement in Croatia, de facto means that certain tenderers in Croatia would be ensured with public procurement contracts for almost a whole decade. It

should also be mentioned that HUP itself states part of the dangers, but sticks with this proposal of “locked” framework agreements. To interpret such a proposal as a “reform” of the public procurement system, i.e. combating corruption in public procurement, is in the least obscure. The situation is very similar with HUP’s request in point 8, where the whole explanation is based more or less on a case study, i.e. experiences of INA (one of the key members of HUP).

Who are the members of HUP and how do they stand in public procurement in Croatia

HUP has a very wide platform of legal entities, i.e. representatives of their boards, which constitute the key bodies of HUP (you can see the list in the documents attached in this article). 50 legal entities from the Assembly of HUP are in public procurement, of which, according to data available on the website www.integrityobservers.eu, the most significant ones are: Zagrebačka banka with 35 contracts from 2012 to today with a total value of 1.608.114.098,02 HRK; Viadukt d.d. with 20 public procurement contracts from 2012 to today with a total value of 410.185.939,25 HRK; Radnik d.d. with 37 public procurement contracts from 2012 to today with a total value of 160.698.815,68 HRK; Medical Intertrade with 193 public procurement contracts from 2012 to today with a total value of 364.123.165,02 HRK; Hrvatski Telekom d.d. with a total of 99 public procurement contracts from 2012 to today with a total value of 185.300.799,97 HRK; Hrvatska pošta (Croatian Post) with a total of 188 public procurement contracts from 2012 to  today with a total value of 168.787.634,95 HRK; HEP Opskrba d.o.o. with 309 public procurement contracts from 2012 to today with a total value of 349.252.289,98 HRK. In the Table 1 attachment you can see all of the actors of the Assembly of HUP who participate in public procurement as well as their impact. What’s especially interesting here is that the members of HUP cite reports which question the average 3,2 tenderers per competition stated in the reports; as the table attached shows, they themselves have achieved their contracts in a far less competitive environment, i.e. with an average of 2,51 tenderers per competition. Overall it is particularly interesting that the most significant actors of the HUP Assembly are also state-owned companies, i.e. sectoral contracting authorities/entities (who are both tenderers and contracting authorities/entities in the public procurement system), which are themselves part of the problem of corruption in public procurement and not part of the solution, at least for now. Namely, a part of them, such as INA, as it can be seen from the data on integrityobservers.eu, didn’t have any competition in the competition (number of tenders is 1 in all contracts), i.e. they have contracts reserved by law, like Hrvatska pošta, and as such they are hardly the ones to talk about a “reform”, and it’s especially hard to believe that the reform which would suit them would also be of public interest. It should be pointed out that of the other actors, the most significant ones are privatised legal entities such as Hrvatski Telekom, Viadukt of Osijek Koteks; it is a well-known fact that the privatisation in Croatia was an economic reward for political support, which is proved by scientific articles in this field.

The second body of HUP, which is also important for the understanding of their position in public procurement, is the Council of Members. Thirty (30) legal entities from the Council of Members of HUP appear in the public procurement in the total value of almost 3,2 billion HRK from the year 2012 to today. It’s important to note that a part of the members of the Council also appear in the Assembly of HUP, so the values from this category cannot be added with the values of the procurement for the members of the Assembly (for a clarification call the association Partnership for Social Development). Here, along with the acts of the above-mentioned members of the HUP Assembly, also appear new significant actors such as: TŽV Gredelj with 20 public procurement contracts with a total value of 238.324.843,29 HRK from 2012 to today; Privredna banka Zagreb with 40 public procurement contracts from 2012 to today with a total value of 792.350.798,17 HRK; Osijek Koteks, which has made 48 public procurement contracts from 2012 to today, for both individual and group tenderers, with a total value of 288.110.786,19 HRK; ERSTE & STEIERMÄRKISCHE BANK d.d. with 28 contracts in the value of 429.110.584,16 HRK from 2012 to today; Ericsson Nikola Tesla d.d. with 32 contracts from 2012 to today with a total value of 117.464.054,92 HRK; As for competitiveness, while looking solely at members of the Council of HUP, the average number of tenders in which they have effectuated  their contracts is two (2), so the situation is even worse on average than is in the case when you look at the Assembly of HUP (see Table 2 in the attachment).

Finally, we have the Executive and Supervisory bodies in HUP where 5 members participated in public procurement procedures, of which the most significant was INA; the competitive atmosphere is 2,6 tenderers per competition where the aforementioned five effectuated their contracts.

So, in the case of HUP and its initiative, the key actors also represent the most risky area of public procurement in Croatia, considering that they are sectoral actors (who are the same time contracting authorities/entities and tenderers), public companies and private ones (kudos to exceptions), which make up the biggest problem in public procurement in Croatia, which we have proven by the biggest scientific research project in Europe (see ANTICORRP). It is particularly interesting that HUP is trying to “lock” its position in framework agreements, i.e. to convert an already non-competitive environment into a permanent state. Doing this by spreading untrue and incorrect information that they “initiate and lead” the reform of the public procurement system. The paradox in this whole story is that instead of proposing solutions which would make their commerce in public procurement more transparent and responsible, they are asking for changes which would strengthen their benefits in public procurement, which couldn’t possibly be public interest.

Soon read more about the other details related to the amendments of the Public Procurement Act.

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Table_3

 



 

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