EXECUTIVE SUMMARY

This inquiry concerns the tender issued by Enemalta Corporation for the supply of new power generating plant at Delimara. Its terms of reference, as laid down by the Public Accounts Committee and agreed to with the National Audit Office, were essentially to investigate whether tender procurement procedures had been regular and relative regulations duly adhered to. These terms of reference were approved at the PAC meeting of the 26 May 2009. Eventually, during a PAC meeting held on 22 March 2010, NAO was also directed to deal with allegations appearing in It-Torca of the 14 March 2010.

In view of the various financial, technical and legal issues involved in such a complex project, this inquiry proved to be very challenging. It was conducted in accordance with Para 9(a) of the Auditor General and National Audit Office Act, 1997 (XVI of 1997) and in terms of NAO practices.

All findings presented in this Report are essentially based on the considerable number of meetings and interviews, some of which under oath, with various officers and other persons who were either involved in the tendering process or offered to provide information related to this inquiry. Findings are also based on voluminous documentation, as supplied by the main parties involved, which was painstakingly analysed by the investigating team.

In line with its guiding principles of independence, fairness and objectivity, NAO was determined to ensure that the allegations brought to its attention were evaluated, investigated and objectively reported upon. The investigating team endeavoured to establish the facts, based solely and exclusively on hard evidence at its disposal. NAO sought to identify any possible shortcoming or irregularity and put forward feasible and relevant recommendations, as indicated hereunder, essentially meant to ensure that best use is made of public funds, especially through the full compliance with relative public procurement regulations and procedures.

The NAO’s inquiry did not come across any hard and conclusive evidence of corruption, even though, for record’s sake, one cannot fail to mention the lack of cooperation from certain stakeholders who contended that they could not recall certain events or information. A case in point is Mr J. Mizzi, local representative for the tenderer awarded this contract, who was considered one of the key players throughout this inquiry. Although summoned by the NAO on three separate occasions, he repeatedly cited lack of memory when asked certain questions.

At the same time, various cases of administrative shortcomings, especially on the part of Enemalta Corporation and the Department of Contracts, were identified. As the Report highlights, in a number of instances, this was due mostly either to lack of experience in the procurement process adopted during this tender and/or insufficient coordination between the two entities, both considered as key stakeholders in the procurement process.

The following are some of the main conclusions referred to in the Report:

i. EMC failed to directly inform the unsuccessful bidders of the outcome of adjudication as clearly established in the Invitation to Tender. This gave rise to the claim made by Bateman that the appeal facility was thus effectively denied to any bidder wishing to appeal from such decision.

ii. The selection of Lahmeyer International, through a direct order, as an independent consultant leaves much to be desired especially when one keeps in view that (a) it is presently blacklisted by the World Bank; (b) it had been previously engaged in a joint project with BWSC (one of the bidders on which LI is supposed to have drawn up an independent analysis); and (c) the agent of the company which eventually won this tender, had also worked as Lahmeyer’s agent up to 2007.

iii. Once the original tender specifications referring to emission levels were changed through the legislative amendment made in January 2008, the decision by EMC and DoC to continue with the ongoing tender is questioned by the NAO. With the benefit of hindsight, it is felt that much of the controversy surrounding this tender could have been avoided had the tendering process been stopped and reissued to reflect such change in specifications.

iv. The decision by Enemalta Corporation to go for a prototype combination instead of the required ‘tried and tested’ as clearly stipulated in the Invitation to Tender is considered to have put EMC in a position of very high risk.

v. DoC could have carried out the role stipulated by the pertinent legislation in a more proactive manner. This is evident when the Department did not vet the Request for Proposals and the ITT documents before these were published. Lack of involvement by the DoC occurred also in the final contract, which was subject to heavy changes brought about through negotiations, before this was signed.

vi. DoC’s late decision to change the tendering model used from negotiated procedure to the three package model was ill-timed. This was because, by the time the bidders were made to re-submit their financial offer, EMC had already evaluated the original financial offers, negotiated these with the bidders and had even selected a preferred bidder.

vii. Once EMC realised, after the submission of the technical bids, that its original specification for tried and tested combinations of equipment that are compliant with emission legislation did not exist in the case of DECC engines, the Corporation brought on board the services of a consultancy firm. The firm, LI, declared prototype combinations, to date untested as one complete unit, to be plausibly able to comply. Although the consultant’s advice was qualified, EMC went ahead and declared the DECC combinations as technically compliant.

viii. The NAO questions the undue haste with which the agreement was signed.

As stated above, this Report includes a number of recommendations put forward by the NAO with the principal objective of improving the procurement process. The following are the main recommendations:

i. A more collaborative and co-operative attitude especially between Enemalta Corporation, as the contracting authority, and the Department of Contracts, as the regulator of the tendering process. This necessitates that the latter in particular is adequately resourced so as to be in a position to perform its challenging role in an effective manner.

ii. More extensive consultation with relative stakeholders is required, possibly even at the planning stage of such complex projects, thus possibly avoiding unnecessary confrontation and allegations at the tendering and implementation phases.

iii. Rules and regulations must be rigorously applied and followed without exception or fail. Quoting reasons of urgency does not per se provide the necessary authorisation for not following such rules and regulations.

iv. Contracting agencies must ascertain that optimal value for money has been attained even after choosing the preferred bidder. Value for money essentially means that prices being ultimately quoted are in line not only with competing bids, but also in relation to prevailing market prices. Such scrutiny and safeguard, which is applied by various contract departments, entities and agencies in other countries, is obviously meant to ensure that public funds are used in the best manner possible.

v. Due monitoring is necessary to ensure the highest levels of transparency, fairness and integrity when identifying and appointing independent evaluators whose findings and recommendations may have a direct bearing on final adjudication, as in this particular case.

Cases of potential conflict of interest must be duly managed to ensure full transparency, fairness and equity in the procurement process and all decisions related thereto. In certain cases, this may necessitate the resignation of officer/s involved in the best long-term interest of both the person/s as well as the public entity involved.

The NAO intends this Report’s findings and recommendations to serve as a useful practical learning process for future procurement assignments, especially where such complex and costly projects are involved.

It is true that even the experience of other countries shows that a certain degree of controversy seems to surround major public procurement projects. However, ultimately, the most economic, efficient and effective use of taxpayers’ monies is of concern to all Maltese citizens. There is therefore the need to continuously strive to improve the public procurement process in Malta, especially through ongoing training and development of personnel working in this area on the emerging procurement practices and procedures both locally as well as within the European Union. The immediate transposition of EU Directive 2007/66/EC with regard to improving the effectiveness of review procedures concerning the award of public contracts is recommended by the NAO.

Only through such improvements in the public procurement process can a high degree of trust in the fairness, transparency, value for money and equity of local public procurement be guaranteed.

To view report (.PDF) please follow link.