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Wednesday, July 7, 2010

Procurement controversies -- Bulgaria

Bulgaria signed 1.4 billion leva public procurement contracts in H1 2010
Bulgaria signed public procurement contracts worth 1.4 billion leva in the first six months of 2010, 1.5 billion leva less than in H1 2009, according to Public Procurement Agency (PPA) data.

"The decrease in public procurement spending will have a dramatic impact on businesses, for whom this is a key source of financing at the moment," Kamen Kolev, deputy chairman of the Bulgarian Industrial Association (BIA), said.

Kolev said that even though the Government delayed payments, it was the most reliable debtor in making payment to Bulgarian companies.

As in 2009, the bulk of the contracts involve small procurements worth less than 50,000 leva for the provision of services.

"The smaller number of public procurements in the public sector whipped up fierce competition in the building industry and prices at tenders are being reduced ," Simeon Peshov, president of construction company Glavbolgarstroy, said recently.
But,

Seventy per cent of Bulgarian firms come across corruption in procurements
Public procurements in Bulgaria leave opportunities for corruption and most local businesses teeter on the verge of the law in completing procedures, according to research by the Bulgarian Industrial Association (BIA).

The report, prepared in partnership with private cultural non-profit institution Friedrich Ebert Foundation (FES), also found that 70 per cent of all 3520 companies have encountered corruption and a further 85 per cent believe that public procurement procedures are unfair and corrupt.

A mere 10-20 per cent of all public procurements held in Bulgaria have been awarded to local companies, and the others are won by foreign organisations, said BIA chairman Bozhidar Danev.

In contrast, local businesses get 70-80 per cent of all contracts in other EU member countries such as the Czech Republic and Estonia.

The main obstacle for Bulgarian companies are the requirements outlined in the participation papers.

"Only 50 per cent of the requirements match the criteria for similar procurements in other countries, the others have been added artificially," Danev said.

Yosif Avramov, deputy chairman of the National Chamber of Entrepreneurs and Craftsmen, said that a major challenge for Bulgarian businesses participating in public procurements is the mismatch between the requirements for low cost and high quality.

Avramov suggested that a register should be set up of the government’s entire overdue debt to businesses. "I think the real figure [of unpaid government debt] is 1.5 billion leva even though the official estimate is 700 million leva," he said.

COMMENTARY: I'm frankly not quite sure what to make of this controversy. Are the complainants saying that specifications prefer quality over price? If so, that may be justifiable so long as "quality" is a not a euphemism for non-competitive practices.

Are the complainants suggesting that there should be some local preference provision? Again, that may be a justifiable complaint, but only to the extent it does not burden local government spending disproportionally.

What these stories point out, however, is that the economics of public procurement have a significant and direct impact on local economies, and any government must economically weigh and balance the direct cost to the purse in the first instance against the indirect cost to the tax base and social structure in the broader context.

Unfortunately, in weighing and balancing such considerations, politicians tend to add the extraneous weight of political patronage to the scales of economy.

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