Government procurement system under scrutiny
By Phillimon Mhlanga
Government is moving to overhaul the public procurement system, after public concern over the State Procurement Board (SPB) for controversially awarding multi-million dollar tenders to undeserving bidders with questionable credentials.
Although the SPB usually uses an open tendering process whereby interested bidders can submit bids, there are many instances where officials have handpicked candidates in the proposed projects, in a move that has raised eyebrows.
Former SPB chairman, Charles Kuwaza, who was at the helm of the tender board for many years until November 2015, was accused of violating professional ethics by awarding tenders to companies that did not meet specifications. He has denied the charges.
While appearing before the Parliamentary Portfolio Committee on Budget and Finance in 2012, Kuwaza admitted that the SPB had corrupt officers who “opened tenders and phoned bidders demanding bribes to facilitate winning”.
Finance and Economic Development Minister, Patrick Chinamasa, also commented on the rot in 2014 saying the SPB was awarding tenders to briefcase companies, thereby increasing the cost of doing business. He described the tendering system as the “capital city of corruption”.
Chinamasa said lucrative tenders were being awarded to middlemen as well.
Given that public procurement plays a significant role in the economy, transparency is considered to be a prerequisite for ensuring accountability of public officials. It takes form in a variety of practices, such as publishing procurement policies, advance publication of procurement plans, advertisement of tender notices, disclosure of evaluation criteria in solicitation documents, publication of contract awards and prices paid and many others.
Analysts who spoke to the Financial Gazette’s Companies & Markets (C&M) last week said public procurement in Zimbabwe had become the bedrock of government corruption. They said an effective and efficient procurement process, which includes incorporating adequate controls to promote competition and minimise the risk of corruption and ensure value for money, must be established.
In this regard, strengthening governance in public procurement reduces risks in complex contracts, which is a new frontier which promotes integrity and prevention of corruption in procurement, they said.
Economist, Gerald Munyoro, who is senior lecturer at Chinhoyi University of Technology’s Graduate Business School and a regional economic development specialist, said corruption was bleeding the economy.
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Munyoro said: “It’s unfortunate that corruption is now a culture. This means it’s now part of survival strategies and this is caused by economic hardships and greediness. Its, however, regrettably coming at a huge economic and social cost to the country because a deal that is unrealised means a particular good or service will not be there disadvantaging the generality of the people who might have benefited from it including the local entrepreneurs depending on the good or service. It also means there is no wealth that would be created resulting in contraction of the Zimbabwean economy or negative growth.”
He added: “Officials need to go back to basics of morality and ethical behaviour. There is also need to strengthening these (procurement) institutions to ensure adequate checks and balances are in place. In short its basic humanity which is lacking or has disappeared.”
Over the years, Zimbabwe has endured serious malpractices in the local bidding system, which resulted in firms awarded tenders failing to kick start or complete projects due to lack of capacity.
In most cases tenders have been awarded to struggling companies, a development which put into question their ability to deliver.
Most high profile but undeserving bidders include a Chinese contractor, China Machinery Engineering Company (CMEC), which in 2013 won the bid to undertake expansion work at Hwange Power Station, the country’s biggest coal-fired power plant, after it tendered its bid at US$1,38 billion.
Government, however, was forced to cancel the tender after CMEC failed to honour its obligation owing to lack of capacity.
The Chinese company failed to secure funding to get the project off the ground, years after winning the tender, resulting in then energy minister, Dzikamai Mavhaire, forcing the SPB to look for another contractor for the US$1,5 billion project.
This resulted in SPB awarding the tender to another Chinese firm, Sino Hydro Corporation, which had also bid for the contract. Its bidding price was US$1,17 billion for the expansion project.
Sino Hydro, which is also implementing the Kariba South Power Station expansion project, has however secured the crucial funding from Export Import Bank of China. C&M understands that financial closure for the project will be achieved next month after all conditions precedent have been fulfilled for the release of the funds.
An Indian firm Jaguar Overseas is another contractor that was undeservingly awarded a tender to re-power Harare Power Station. Several years after being given the right to undertake the project, it has failed to secure funding for the project. It has jumped from one financier to another without success. Initially it approached Export Import Bank of India but after due diligence, the Indian bank turned down the request for financial support.
Jaguar has now turned to African Export Import Bank (Afreximbank). The Cairo headquarter bank is currently carrying out a due diligence exercise on the company.
Surprisingly, the embattled Jaguar was also awarded the tender to re-power Munyati Power Station despite that the Indian company has been struggling to secure funding for Harare Power Station. Again, there is no progress at the site.
Indian firms, Water and Power Consultancy Limited (WAPCOS) and Angelique won tenders for the rehabilitation of the Deka Pump Station and a construction of a 42-kilometre pipeline to bring raw water from the Zambezi River into two reservoirs supplying water into Hwange Power Station for electricity generation. This pipeline was expected to augment the existing one.
The pipeline also supplies drinking water for the surrounding Ingagula community.
WAPCOS won the project implementation contract while Angelique was awarded the engineering, procurement and construction (EPC) contract for the project.
But the project has failed to take off despite the fact that the Indian government provided US$28,6 million for the project.
Intratrek Zimbabwe, which is owned by controversial businessman, Wicknell Chivayo, was awarded the EPC contract for the Gwanda Solar Power project in 2015.
But there is no progress at the site. In fact, there are suggestions that many undeserving outfits in Zimbabwe act as fonts for foreign contractors.
It is believed that they get a cut for placing and winning tenders.
Chivayo has already drawn down several millions of dollars from the country’s power generation company for the project.
The contract to Intratrek was awarded despite the fact that Chivayo had a criminal conviction. This was clearly in violation of the law.
Recently, the SPB controversially handpicked struggling coach building companies, Deven Engineering, AVM Africa and automobile maker FAW Zimbabwe, to supply all schools that required buses. This was done under the pretext of supporting the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim-Asset). These companies have, however, failed to deliver.
In an email responding to C&M enquiries, SPB executive chairman, Buzwani Mathobi, last week indicated that the provisions of the Procurement Act does not allow “for award of tenders to undeserving suppliers”.
He suggested that government procuring entities had the prerogative to specify the calibre of suppliers to be awarded contracts.
Mathobi said: “Most multi-million dollar projects presided by the SPB relates to works and are governed by Section 31 of the Procurement Act.
“The requirement is that the procurement opportunities be advertised to attract the attention of interested business people to remove the element of favouritism that arise from hand-picking suppliers to contracts, at the same time achieving transparency.
“Procuring entities are required to prepare a solicitation document with comprehensive information on the nature, quantum and quality of the requirement and the means that shall be used to evaluate compliance of the requirements during evaluation in line with Section 11 of the Procurement Act as read in conjunction with Section 31 (1) (e) of the Procurement Act.
“The calibre of the preferred supplier in the tender process is regulated by Section 34 of the Procurement Act that lists the parameters that procuring entities may include as an evaluation criteria.
The criteria include the technical and financial capacity of suppliers required, their compliance with the Zimbabwe Revenue Authority and National Social Security Authority and that the company or directors have no criminal record.
“The prerogative to include supplier calibre elements that are relevant to purchase rests with the procuring entities. Section 34 (1) categorically states the wisdom to include or exclude the elements under this provision to the procuring entity.
“What the SPB considers is that the supplier calibre included in the solicitation document should meet the provisions of Section 31 (1) (e) of the Procurement Act in that it must specify how each criteria will be evaluated in advance and be applied to all participants equally and must be stated in the solicitation document in line with Section 34 (4) and (5) of the Act.
“In view of the above explanation, there are no provisions that allow for award of tenders to undeserving suppliers.
“A deserving supplier is a supplier that offer a valid offer, meaning an offer that meets the tender requirements and at the same time offering the lowest price in line with Section 15-22 of the procurement regulations as read in conjunction with Section 31(1(m) of the Procurement Act.”
To get the best procurement outcome, selecting tenders on the basis of lowest price can be a misguided practice.
Apart from buying goods and services, the SPB must also take due consideration into other procurements rights, such as getting these from the right source, at the right specification that meets users’ needs; the tenderer should have the capacity to deliver goods and services of satisfactory quantity and quality and these should be delivered at the right time.
So bad has been the situation that government has since moved to overhaul the SPB, which is charged with procuring all goods and services for government, parastatals and local authorities.
This is meant to address historical loopholes and ensure fairness, honesty, cost effectiveness and competition. The Public Procurement Bill has since been gazetted and is being debated in Parliament.
Once passed into law, the new procurement law will pave way for the establishment of procurement regulatory authority to be called the Procurement Authority of Zimbabwe, which will oversee the process with the aim of bringing transparency in tender processes. The Bill will transfer the responsibility of awarding tenders to individual entities.
Under this Bill, the competitive bidding method of procurement will be the normal method to be employed by procuring entities, unless circumstances demand that the other methods be employed. Financial Gazette
