E-market savings only one quarter the amount predicted by the Ministry of Regional Development
PRESS RELEASE on Audit No. 13/24 – May 5, 2014
The Supreme Audit Office (SAO) performed an audit of State budget funds spent on the project National infrastructure for electronic public procurement (NIPEZ) and purchases of selected commodities via e-market. The auditors focused on five individual e-markets, which should be used by ministries and eleven other national administration authorities as well as their subordinate organisations to purchase selected commodities.
The launching of e-marketing system was postponed three times as the NIPEZ project fell one year behind the schedule. On July 1, 2012, which was the due date, only two out of five e-markets selected by the Ministry of Regional Development were launched. The duty to make purchases via e-markets was decreed in a ruling of the Government. No inspections were scheduled and no sanctions claimed in case the contracting authorities (i. e. ministries and other national authorities) failed to abide by the ruling in spite the previous related projects’ conditions had been set in the same way and the Ministry concluded that such conditions were unsuitable.
A feasibility analysis prepared by the Ministry of Regional Development stated that e-markets would annually save CZK 1,200 million. But after the launch of e-markets, the Ministry failed to store data, which could be used to document such savings. Auditors compared estimated values and final costs in the agreements and concluded that during the first year of the new system, savings made only CZK 320 million.
The Ministry of Regional Development paid CZK 37 million for creation of e-markets and CZK 22.4 million for the first year of the system’s operating. During the first year, there were over 44,000 contracts listed in five e-markets. Nearly 32,000 of the contracts worth CZK 2,250 million in total ended up with conclusion of agreements with suppliers. But 38 % of public contracts listed in e-markets were awarded without tenders, in which the SAO finds negative influences on the efficiency of e-markets as well as on planned savings.
TENDERMARKET was the most used e-market, with more than 27,000 public contracts. Auditors compared the participation rates of individual ministries. It was revealed that the most public contracts – more than 11,000 with the total price in the amount of CZK 706.6 million – were awarded by Ministry of Defence. But it is necessary to point out that over 40 % of these contracts were awarded without tendering. The total number of contracting authorities listed at e-markets was 570, and there were 10 197 suppliers. The number of suppliers represents only 0.39 % of economic subjects in the Czech Republic.
The Ministry of Regional Development estimated that the operating costs of e-markets would amount to CZK 352 million in five years (VAT not included). In compliance with the concession agreement, external operators of the e-markets are paid for every listed order on the basis of the list of prices. The Ministry violated legal regulations when increased the prices for individual services, which resulted in higher costs of e-markets’ operating. For example, according to a clause, the Ministry increased prices in spite the original agreement stated that in case of serious and objective reasons, only operators can ask for price increases. The SAO thinks that the operating costs of e-markets are excessive and in the future, the State will also pay more than necessary.
The SAO inquired suppliers that were registered at e-markets about positives and negatives of the new purchasing system of commodities. Out of some 2,000 respondents, nearly 600 answered the auditors’ inquiries. The respondents mostly criticized time-consuming contracting process, complicated and lengthy searching, poor arrangement, and user-unfriendly environment.
E-markets are key tools for transparent public tendering and have a verifiable influence on decreasing the final costs of public orders. In consideration of the above mentioned insufficiencies of e-markets, the SAO concluded that there were many possibilities for improvement, for example using “open” procedures more often, which could allow the contracting authorities to achieve higher savings.
The SAO believes that successful developments of electronic ordering are key elements of economical and efficient management with the State budget funds. A seminar focused on the topic will be organized by the SAO on September 18, 2014. The title of the seminar is “Public Contracts – Value for Money 2014”. (For details, see www.nku.cz.)
Communication Department
Supreme Audit Office